Passive Investing IPOs Market Volatility

Stocks Go up More When CEOs Interviewed By Anchorwomen [STUDY]

Media reporting may impact stock prices beyond the dissemination of new information. According to the visibility hypothesis, media attention alone can permanently increase a firm’s value by broadening its investor base (Merton, 1987; Miller, 1977). Huberman and Regev (2001) analyze the puzzling case of a New York Times article, which did not contain any new facts but caused a dramatic rise in the stock price of interviews a small biotech company. They attribute EntreMed Inc (NASDAQ:ENMD)’s astounding market reaction to the article’s prominent position on the front page and to its optimistic tone and content that enthusiastic public attention can move stock prices away from fundamental values, possibly contributing to the formation of asset pricing bubbles.

Stocks Go up More When CEOs Interviewed By Anchorwomen [STUDY]

Any empirical study that investigates the causal impact of media attention upon stock prices has to overcome three obstacles. First, it should move beyond anecdotal evidence and examine whether media attention systematically affects stock prices. Second, it has to separate attention from information effects. Finally, it should delineate the mechanism by which attention affects stock prices to assess whether media-generated attention indeed distorts security prices
(Engelberg and Parsons, 2011).

We believe that we can overcome these three obstacles by studying market reactions to almost 7,000 CEO interviews that were broadcast on the cable television channel CNBC between 1997 and 2006. The large number of interviews allows us to investigate whether media attention systematically affect stock prices. We can separate attention from information effects in a similar manner to Huberman and Regev (2001) since these interviews share essential characteristics with the article about EntreMed Inc (NASDAQ:ENMD): The article constituted a burst of optimism released to a large audience on the front page of the New York Times, which was very suggestive of a genuine news event, distracting from its low actual information content. Similarly, CEO interviews on CNBC are broadcast to a large audience, CEOs have strong incentives to be very optimistic about their companies, and their mere appearance on television is suggestive of a genuine news event.

PDF Link: SSRN-id2339529

H/T Jason Zweig


Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Are you an intelligent investor?

ValueWalkPremium is a website and newsletter for smart investors like yourself. We focus on the latest hedge fund industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers