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Earnings dispersion in the spotlight: The effects of media coverage on stock liquidity

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  • Shyu, Hawfeng
  • Gao, Feng
  • Wu, Peng
  • Zhu, Song

Abstract

This paper investigates the changes and dispersion of earnings signals as they proliferated through media coverage on stock liquidity. We determine that the earnings dispersion disseminated by the media will reduce stock liquidity during earnings announcement. By investigating the dissemination effects of earnings dispersion on trading activity, we find that individual investors refrain from providing liquidity to those stocks with highly media-exacerbated earnings dispersion. Institutional investors, however, do not reduce their trading on media-exacerbated earnings dispersion stocks. To identify the causal relation with media coverage, we exploit the variation in information dissemination stemming from actual investor accounts, which represent the ex-ante information breadth of a stock. The results demonstrate that stocks with a larger number of investor accounts have an amplified effect from earnings dispersion on stock illiquidity. These effects are significant for individual accounts, as opposed to institutional accounts. Overall, these results imply that the media create the real impact of earnings dispersion on stock liquidity by directing investors' attention.

Suggested Citation

  • Shyu, Hawfeng & Gao, Feng & Wu, Peng & Zhu, Song, 2020. "Earnings dispersion in the spotlight: The effects of media coverage on stock liquidity," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:pacfin:v:60:y:2020:i:c:s0927538x17304900
    DOI: 10.1016/j.pacfin.2019.06.008
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    Cited by:

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    2. Wilkoff, Sean & Yildiz, Serhat, 2023. "The behavior and determinants of illiquidity in the non-fungible tokens (NFTs) market," Global Finance Journal, Elsevier, vol. 55(C).
    3. Yao-Tsung Wu & Chien-Hung Liu & Kuo-Hao Lin & Dun-Yao Ke, 2024. "Does media coverage matter for the performance of technical trading strategies? Evidence from Taiwan," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 23(1), pages 147-166, January.
    4. Nepp, Alexander & Okhrin, Ostap & Egorova, Julia & Dzhuraeva, Zarnigor & Zykov, Alexander, 2022. "What threatens stock markets more - The coronavirus or the hype around it?," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 519-539.
    5. Zhang, Hongwei & Hong, Huojun & Guo, Yaoqi & Yang, Cai, 2022. "Information spillover effects from media coverage to the crude oil, gold, and Bitcoin markets during the COVID-19 pandemic: Evidence from the time and frequency domains," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 267-285.

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    More about this item

    Keywords

    Individual investor; Institutional investor; Earnings dispersion; Stock liquidity; Media coverage;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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