| Summary: | In this thesis, I investigate the role of investor attention in financial markets by examining the
media’s coverage of corporate earnings news. The first paper studies the potential impact of
information in the financial press by identifying systematic differences between aggregate
corporate earnings news coverage in the Financial Times, Wall Street Journal, and the New
York Times, and measures of expected coverage based on contemporaneous earnings
information flows as reported in JJBIEIS. I find that publication-specific estimates of “excess”
aggregate positive or negative coverage exhibit strong serial correlation, consistent with media
bias. Furthermore, unexplained negative (positive) weekly coverage predicts positive (negative)
returns for small-stock indices and the equal-weighted NYSE, suggesting that the effects of
predictability in financial news coverage are economically significant and may be related to
informational inefficiency with respect to smaller firms.
The second paper examines media coverage decisions to identify the determinants of
investor attention with respect to events and firms. Using ex ante predicted probability of media
coverage (PMC) with respect to earnings news as a measure of attention in this context, I study
the returns experienced by low-attention stocks from 1984 and 2005. As in prior studies, I find
high risk-adjusted returns for “neglected” stocks, which appears to be highly consistent with,
e.g., Merton’ s (1987) investor recognition hypothesis, or an information risk setting (Easley et
al. (2002)). However, in examining the event-specific determinants of media coverage, I find
evidence of a significant “negativity bias” in attention: holding other factors constant, bad news
is more likely to attract coverage than is good news regarding an otherwise-identical firm.
Given recent evidence in the literature regarding stock-price underreaction to low-attention
events, this suggests asymmetric investor attention as a potential explanation for an apparent
neglected firm premium in the cross-section of stock returns. Consistent with this hypothesis, I
find that the excess returns to low-PMC portfolios are attributable to drift in the stock prices of
low-attention “good news” firms, while low-attention “bad news” firms appear to be efficiently
priced.
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