A Theory of Financial Media

Posted: 2 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

We develop a model of financial media in which some investors only observe firm announcements that are covered by journalists. The introduction of journalists induces more informed trading by readers, but inadvertently incentivizes the manager to obfuscate announcements. We argue that this obfuscation arises in spite of journalists, not because of them. Although the stock becomes mis-priced, readers are better off and prices are more informative. 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, disclosure, obfuscation, 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). European Corporate Governance Institute – Finance Working Paper No. 657/2020. 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 )

Dept of Biology
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

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