Institutional Participation in Information Production and Anomaly Returns

Abstract

Financial media frequently report the predictions of institutional investors. Using texts of all Wall Street Journal articles from 1979-2020, we measure the intensity of institutional investors’ participation in news production (InstPred) for each industry.  We show that InstPred (i) predicts more information production about firm fundamentals, (ii) boosts institutional trading on mispricing, and (iii) accelerates the correction of longer-term mispricing by up to 34% to 62%. Our results are reinforced by quasi-exogenous variation in industries' investor-WSJ connections. Overall, our study shows that crowd-sourcing institutional investor participation in news production improves the quality of the information environment in the long term.

Keywords: Media, Crowd Sourcing, WSJ, Institutional Investors, Information Environment, Anomalies