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News Dissemination and Investor Attention: New Insights from Behavioral Finance

Posted by
Swiss Finance Institute
Friday, May 19, 2017 - 08:00

Until recently the efficient market hypothesis reigned supreme in finance. According to this view, the stock prices of listed companies react promptly and accurately to new information, for instance to earnings releases. Because information is thought to flow freely, corporate communication is seen as redundant.

Financial economists have now moved beyond this idealistic vision, adopting instead that of behavioral finance. According to this view, information does not flow freely into prices. For example, investors have limited attention, resulting in delayed stock price reactions to news.


In a recent study published in the Review of Finance Romain Boulland (Essec), François Degeorge (USI Lugano and SFI) and Edith Ginglinger (Paris-Dauphine) show that the channel chosen by firms to disseminate their news affects how fast their earnings news gets into the stock price. In Continental Europe in the 2000 decade, many companies switched from releasing their earnings news in non-electronic format in their home language, to releasing them on electronic wire services and in English. The switch was followed by faster stock price reactions and an increase in trading volume at the earnings announcement


The authors find no evidence that the shareholder base changed after companies started using wire services, nor do they detect any change in companies’ relative exposures to global and local market risks. Instead, companies that started using wire services became much more likely to be covered by Reuters and Dow Jones. Based on this evidence, the authors argue that wire services effectively convert raw company earnings news into tradeable information, which explains why investors pay more attention to earnings news released through wire services. In short, the medium makes the message.