Market Reaction to Second-Hand News: Attention Grabbing or Information Dissemination?

Abstract

This paper deals with a long standing issue in finance: weather the market reaction to second-hand information is due to price pressure or dissemination. We take an attention-grabbing perspective as a particular form of price pressure in analysing the market reaction to the dissemination of analysts' recommendations through the press. This perspective allows predicting an asymmetric market reaction to "buy" and "sell" advises, already detected in few other empirical studies, otherwise difficult to rationalize within the standard price pressure hypothesis. In particular, we analyse the content of a column that appears weekly in the most important Italian financial newspaper and presents past information and analysts' recommendations on listed companies, finding an asymmetric price and volume reaction. Contrary to previous evidence, we document a positive relation between the number of analysts quoted in the column and the price (volume) increase associated to positive recommendations. Since the weekly columns simply attract the attention of investors with no additional new information, it is natural to observe a greater reaction for the most "glamour" stocks (i.e. the stocks analysts follow mostly).