Media Coverage and the Cross-Section of Stock Returns: Chinese Evidence

Zou, Liping; Cao, Kien; Wang, Yishun

doi:10.2139/ssrn.2905388

Cited by 2 publications

(1 citation statement)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Fang and Peress (2009) document the impact of mass media coverage on cross-sectional stock returns and propose what they call the "mass media effect": stocks with lower mass media coverage earn higher returns. This effect has been demonstrated in various countries (Ferguson et al, 2015;Aman et al, 2018;Griffin et al, 2011;Turner et al, 2018;Zou, Cao and Wang, 2018). Fang and Peress (2009) and others explain the mass media effect through the " investor recognition hypothesis" of Merton (1987).…”

Section: Introductionmentioning

confidence: 88%

Social media effect, investor recognition and the cross-section of stock returns

Meng

Zhang

et al. 2020

International Review of Financial Analysis

View full text Add to dashboard Cite

Investor recognition affects cross-sectional stock returns. In informationally incomplete markets, investors have limited recognition of all securities, and their holding of stocks with low recognition requires compensation for being imperfectly diversified. Using the number of posts on the Chinese social media platform Guba to measure investor recognition of stocks, this paper provides a direct test of Merton's investor recognition hypothesis. We find a significant social media premium in the Chinese stock market. We further find that including a social media factor based on this premium significantly improves the explanatory power of Fama-French factor models of cross-sectional stock returns, and these results are robust when we control for the mass media effect and liquidity effect. Finally, we find that investment strategies based on the social media factor earn sizable risk-adjusted returns, which signifies the importance of the social media premium in portfolio management.

show abstract