Market reaction to second-hand news: inside the attention-grabbing hypothesis

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This article investigates whether the market reaction to second-hand information is due to price pressure or information dissemination. We use the perspective of attention grabbing to analyse the market reaction to the dissemination of analysts’ recommendations published in print media. This perspective is able to explain the asymmetric market reaction to ‘buy’ and ‘sell’ advice, which is difficult to rationalize within the price pressure hypothesis. We base our empirical analysis on the content of a weekly column in the most important Italian financial newspaper, which publishes past information and analysts’ recommendations on listed companies. Our findings show asymmetric price and volume reactions on the publication day. Contrary to previous evidence, we document a positive relationship between the number of analysts quoted in the column and the price (volume) increase associated with positive recommendations. Because the weekly columns seem to simply attract investors’ attention, with no additional new information, observing a reaction positively related to the column’s salience (proxied by the number of quoted analysts) is natural. In addition, we find that the market reaction is higher when the order size is lower, i.e., when individual investors’ trades constitute a higher fraction of the total trading activity in the market.

Keywords: D82; G14; analyst recommendations; anomalous market reaction; attention grabbing; event study; individual investors

Document Type: Research Article


Affiliations: 1: Department of Management, University of Bologna, via Capo di Lucca 34, 40126, Bologna, Italy 2: Cefin (Centro Studi Banca e Finanza), Universit√° degli Studi di Modena e Reggio Emilia, Modena, Italy

Publication date: April 3, 2014

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