The Media’s Role in Market Reactions to Securities Class Action Filings 

Abstract

It is unclear how investors quickly incorporate the complex news from securities class action filings into prices based on frictions that could impede obtaining and interpreting the information in these filings. The media has expertise that may assist this reaction. We find media coverage is significantly associated with short-term market reactions, even before filings are publicly available. Notably, we find economically significant market reactions only for litigation with media coverage. We also find an immediate reaction to articles about litigation using intraday stock prices. Results are driven by the media reducing investor integration costs by producing understandable, detailed case information. Thus, the media is critical for investors to quickly impound litigation news into stock prices.

Keywords: Market Reaction, Securities Litigation, Securities Class Action, Investor Processing Costs, Market Participants, Media

JEL Classification: G12, G14, G18, K22, K40, L82, M40