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

Author

Listed:
  • Leif Brandes

    (Institute for Strategy and Business Economics, University of Zurich)

  • Katja Rost

    (Institute of Organization and Administrative Science, University of Zurich)

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.

Suggested Citation

  • Leif Brandes & Katja Rost, 2009. "Media, Limited Attention and the Propensity of Individuals to Buy Stocks," Working Papers 0098, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Sep 2009.
    • Handle: RePEc:iso:wpaper:0098
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    media; investor behavior; limited attention; selection model;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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