Local Media and Individual Trading
38 Pages Posted: 2 Feb 2017
Date Written: January 30, 2017
Does local media affect how individual traders trade? The role of media on the stock market has only recently started receiving attention in the finance literature. This literature has mainly focused on single, nationwide press sources such as the Wall Street Journal and DJ Wire. As a consequence, the effect of local media on the markets has remained largely unexplored, in spite of the relatively large role of local media in informing households and the heterogeneity of local media across regions. This study investigates one facet of the relationship between local media and the markets: the incremental market influence of local media over other nationwide media. I find that local media predicts individual investors' trading patterns. In particular, I find that cities in which the local media mentions a particular stock see a substantial increase proportion of households that trade the stock over the subsequent periods. Using earnings announcement related news as a plausibly exogenous news shock, I also present evidence that this relation may be causal. Lastly, I present evidence that the local media effect may work through a salience channel.
Keywords: Household Portfolio Choice, Local Media, Information
JEL Classification: D14, D84, G02, G11
Suggested Citation: Suggested Citation