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Individual investor ownership and the news coverage premium

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  • Marmora, Paul

Abstract

If widely-circulated news providers cater to the information demands of individual investors, stocks with high individual ownership should receive more news coverage, theoretically resulting in lower volatility and a lower cost of capital. In this paper, I explore this hypothesis by utilizing the extensive news sources available in Bloomberg Terminals to construct a monthly panel dataset of S&P 500 firms between 2012 and 2019. I verify that companies with a higher percentage of individual investor ownership receive more news coverage, and that this effect is strongest among larger firms. In order to quantify the importance of this mechanism for stock prices, I estimate a panel VAR model and conduct a counterfactual analysis where the news coverage response to exogenous shifts in ownership composition is effectively “shut off”. The counterfactual analysis implies that an increase in news coverage triggered by a one standard deviation rise in individual ownership reduces annual stock volatility by 0.51% and annual returns by 0.135%, suggesting that the individual investor-news coverage channel partially offsets the more well-documented informational advantages of institutional ownership.

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  • Marmora, Paul, 2021. "Individual investor ownership and the news coverage premium," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 494-507.
    • Handle: RePEc:eee:quaeco:v:80:y:2021:i:c:p:494-507
    DOI: 10.1016/j.qref.2021.03.010
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    More about this item

    Keywords

    Stock returns; Financial news coverage; Individual ownership; Panel VAR;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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