Foreign Investment under the Spotlight of Home Media

56 Pages Posted: 18 Feb 2021 Last revised: 10 Mar 2021

See all articles by Wai-Man Liu

Wai-Man Liu

Australian National University

Jing Yu

The University of Sydney; Financial Research Network (FIRN)

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: February 22, 2021

Abstract

Foreign investors’ information disadvantage is often viewed as a key impediment to their investment. This study questions whether foreign investors’ home media mitigates this information barrier by investigating the relation between U.S. mutual fund ownership and U.S. media coverage of local stocks in their host countries. Using a large sample of 38 host countries, we document a positive association between U.S. mutual fund ownership in a local stock and the coverage of U.S. major news providers on that stock. We find that home media-covered stocks incur lower information acquisition costs and gain greater investor awareness from U.S. investors. The home media effect is most salient in host countries with low quality information environments, supporting a novel home media effect that foreign investors tend to rely on their home market media coverage as an information source. The home media effect helps explain the prominent international finance anomaly regarding the dependence of firm returns on home and foreign market factors.

Keywords: Foreign equity investment; Foreign mutual fund; Media coverage; Home media bias

JEL Classification: F21; F23; G23

Suggested Citation

Liu, Wai-Man and Yu, Jing and Zhang, Bohui, Foreign Investment under the Spotlight of Home Media (February 22, 2021). Available at SSRN: https://ssrn.com/abstract=3754609 or http://dx.doi.org/10.2139/ssrn.3754609

Wai-Man Liu

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://www.cbe.anu.edu.au/about/staff-directory/?profile=Wai-Man%20(Raymond)-Liu

Jing Yu (Contact Author)

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
23
Abstract Views
114
PlumX Metrics