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Media, Limited Attention and the Propensity of Individuals to Buy Stocks

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Author Info
Leif Brandes () (Institute for Strategy and Business Economics, University of Zurich)
Katja Rost () (Institute of Organization and Administrative Science, University of Zurich)

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Abstract

This paper contributes to the existing literature on media content and asset prices by analyzing the relationship between the adoption of media guidance and a personÕs propensity to buy stocks. We provide empirical evidence on this relationship while controlling for a broad range of individual characteristics and preferences. The approach is based on a recent study that suggests that investors are characterized by limited attention and use media as a heuristic when deciding which assets to buy. In line with this view, it turns out that the link between media guidance and the propensity of individuals to buy stocks is extremely robust. However, our results contradict previous findings insofar as this relationship is not moderated by a personÕs degree of attention allocation to investment aspects. As the literature shows stocks with media coverage to underperform those without coverage, we conclude that the adoption of this heuristic can be very costly to investors.

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File URL: http://www.isu.uzh.ch/static/ISU_WPS/98_ISU_full.pdf
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File Function: Revised version, 2009
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Publisher Info
Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0098.

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Length: 42 pages
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Handle: RePEc:iso:wpaper:0098

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Related research
Keywords: media; investor behavior; limited attention; selection model;

Find related papers by JEL classification:
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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References listed on IDEAS
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