A Theory of Financial Media

33 Pages Posted: 2 Oct 2019 Last revised: 7 Oct 2019

See all articles by Eitan Goldman

Eitan Goldman

Indiana University - Kelley School of Business - Department of Finance

Jordan Martel

Indiana University Bloomington

Jan Schneemeier

Indiana University - Kelley School of Business - Department of Finance

Date Written: September 20, 2019

Abstract

Despite a growing empirical literature, which documents the economic importance of financial media, much of the existing theoretical work takes public financial news as a model primitive. In this paper, we develop a simple model in which financial media plays an economic role: many investors cannot observe the universe of all firm announcements and rely on a financial journalist to choose which announcements to report and which not to. The model explores implications for the behavior of the journalist, the manager, investors, and for stock prices. We find that the introduction of a journalist induces more informed trading by readers, but inadvertently incentivizes the manager to bias the firm's announcements. We argue that this bias arises in spite of the journalist, not because of her. Although the stock becomes mis-priced, readers are better off and prices are more informative. Finally, we find two endogenous biases: extreme financial news is more likely to be reported than mundane news and good news is more likely to be reported than bad news.

Keywords: financial journalism, manipulation, price quality

JEL Classification: D82, G14, M40

Suggested Citation

Goldman, Eitan and Martel, Jordan and Schneemeier, Jan, A Theory of Financial Media (September 20, 2019). Available at SSRN: https://ssrn.com/abstract=3457591 or http://dx.doi.org/10.2139/ssrn.3457591

Eitan Goldman

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-856-0749 (Phone)

Jordan Martel

Indiana University Bloomington ( email )

100 South Indiana Ave.
Bloomington, IN 47405
United States

Jan Schneemeier (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1275 E 10th St
Bloomington, IN 47405
United States

HOME PAGE: http://www.jan-schneemeier.com

Register to save articles to
your library

Register

Paper statistics

Downloads
68
Abstract Views
258
rank
340,057
PlumX Metrics