THE IMPACT OF THE INSIDER TRADING SCANDAL ON THE INFORMATION CONTENT OF THE WALL STREET JOURNAL'S “HEARD ON THE STREET” COLUMN

Abstract

We examine the impact of a scandal on the information content in the "Heard on the Street" column of the Wall Street Journal. Following the scandal in 1984, the column is found to have a reduced impact on stock prices for both buy and sell recommendations. However, the stock price response to information later published in the column before the publication day is smaller for the post-scandal period. This result suggests that after the scandal, editors and authors may have become more cautious in guarding against information leaks in the column. The scandal does not appear to have changed the impact of the column on trading volume.

Fifty-Fifty. Stock Recommendations and Stock Prices. Effects and Benefits of Investment Advice in the Business Media

“…As in many other cases, nothing is left of the excess returns after transaction fees. 44 Barber, Lehavy, McNichols and Trueman (2001) find statistically significant, but for the private investor economically irrelevant excess returns in the estimates of investment analysts for the years 1986 to 1996. Barber, Lehavy, McNichols and Trueman (2002) find no statistically significant excess returns in the estimates of investment analysts for the years 2000 and 2001.…”

“…43 As soon as the numbers seem to indicate significant excess returns, these have already disappeared again. 44 But from the point of view of the private investor, this does not make any difference, even if the reactions seem to show the "right" tendency. He or she cannot even benefit economically from positive anomalies: 45 Price reactions set in too quickly, and transaction costs exceed cumulative excess returns.…”

The Effects of Business Magazine Recommendations on the Stock Prices in Turkey: Case of Para

“…Pound and Zeckhauser (1990) focused to the takeover rumors, obtained no abnormal returns on the publication day. Beneish (1991) reported a significant positive abnormal return on publication date in the HOTS column for the period 1978-1979. Liu et al (1992 investigated whether recommendations provide abnormal returns to investors for the period 1982-1985.…”

Do Jim Cramer’s Mad Money Recommendations Have the Same Impact in a Bear Market as in a Bull Market?

“…In studies of newspaper or magazine columns, Mathur and Waheed (1995) find significant abnormal returns and trading volume in event periods around recommendations contained in the "Inside Wall Street" column from BusinessWeek. Several authors who look at "Heard on the Street" in the Wall Street Journal find significant market reactions around the day of publication, including Liu, Smith, and Syed (1990), Beneish (1991), Liu, Smith, and Syed (1992), Bauman, Datta, and Iskandar-Datta (1995), and Sarkar and Jordan (2000). The Wall Street Journal's previously conducted dartboard contests also produced abnormal returns on announcement days exceeding 3% as documented by Pruitt, Van Ness and Van Ness (2000), Albert and Smaby (1996), Metcalf and Malkiel (1994), and Barber and Loeffler (1993).…”