Foreign Investment under the Spotlight of Home Media

Abstract

This study examines the informational role of home media for foreign equity investment. 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. In addition to the conventional information dissemination and attention-grabbing media effects, we provide evidence of a novel home media effect that professional investors tend to entrust their home media in their foreign investments. Finally, our findings help explain the 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