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Do Ads Influence Editors? Advertising and Bias in the Financial Media

Author

Listed:
  • Jonathan Reuter

    (University of Oregon. Lundquist College of Business)

  • Eric Zitzewitz

    (Stanford GSB)

Abstract

We use mutual fund recommendations to test whether editorial content is independent from advertisers’ influence in the financial media. We find that major personal finance magazines (Money, Kiplinger’s Personal Finance, and SmartMoney) are more likely to recommend funds from families that have advertised within their pages in the past, controlling for fund characteristics like expenses, past returns and the overall levels of advertising. We find little evidence of a similar relationship for mentions in the New York Times or Wall Street Journal. Positive media mentions in both newspapers and magazines are associated with significant future inflows into the fund while advertising expenditures are not. Therefore, if we interpret our coefficients causally, a large share of the benefit of advertising in our sample of personal finance magazines comes via the apparent content bias. The welfare implications of this apparent bias are unclear, however, since our tests suggest that bias does not directly lead publications to recommend funds with significantly lower future returns than they might have recommended in the absence of any bias. In selecting funds to recommend, magazines overweight past returns relative to expenses, and as a group their recommendations do not outperform even an equal- weighted average of their peers. Nevertheless, this approach leaves magazines with large numbers of funds with high past returns from which to select, and so bias towards advertisers can be accommodated without significantly reducing readers’ future returns. Interestingly, the recommendations of Consumer Reports, which does not accept advertising, have future returns comparable to or below those of the publications which accept do advertising.

Suggested Citation

  • Jonathan Reuter & Eric Zitzewitz, 2005. "Do Ads Influence Editors? Advertising and Bias in the Financial Media," Finance 0501003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpfi:0501003
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    More about this item

    Keywords

    mutual fund recommendations;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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