A Theory of Financial Media
44 Pages Posted: 2 Oct 2019 Last revised: 22 Feb 2020
Date Written: September 20, 2019
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: Suggested Citation