Peers’ media coverage releases and investor heterogeneity

Jiaxin Duan, Yixin (Lucy) Wei and Lei Lu

Pacific Accounting Review, 2023, vol. 35, issue 4, 512-533

Abstract: Purpose - This study aims to examine the behaviour of institutional and retail investors in response to news about industry leaders (peer firms) and to determine its impact on the stock prices of other firms (focal firms) within the same industry. Design/methodology/approach - The study investigates the impact of peer news on investor behaviour of Chinese A-shares listed on the Shanghai and Shenzhen Stock Exchanges from 2010 to 2019. The media coverage of industry leaders is sourced from prominent Chinese online financial outlets and the Chinese Financial Press. Support vector machine is applied to identify the positive, neutral and negative news within the articles. The study uses event study and logistic regression to examine the effects of peer news on focal firms’ investor behaviour. Findings - The results show that both good and bad news about leaders cause peers’ stock prices to increase initially, but then reverse within one quarter. Further analysis reveals that when leaders’ shares receive positive news coverage, institutional investors tend to exert excessive abnormal buying pressure on peers’ shares, resulting in overreactions. Conversely, retail investors do not actively trade on peers on leaders’ news day due to limited attention. In addition, the study shows that short-selling constraint inhibits bad news from reflecting in the stock prices. Originality/value - The study highlights differences in investor behaviour. The finding that institutional investors tend to overreact more to peer firms’ news when focal firms are smaller and have a lower frequency of information disclosure supports the salient theory. This is consistent with the previous framework that suggests overreaction is more pronounced when it is difficult to combine external sources of information to evaluate the focal firms. In contrast, retail investors do not engage in active trading on peers on leaders’ news day due to the limited attention theory.

Keywords: Investor heterogeneity; Trading behaviours; Peers’ media coverage; Overreaction (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:parpps:par-08-2022-0110

DOI: 10.1108/PAR-08-2022-0110

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