The Impact Of Media Attention On Stock Prices

Media is a product of the information age; it disseminates information to the audiences through wide social news coverage, which affecting people’s daily lives. In the economic field, media influence is strengthening, and economic media which act as an information intermediary role in the capital market is becoming increasingly important. Media also enhances investors’ access to information and reduces search costs, in this way; reports of media change the behavior of investors, eventually causing the volatility of stock price. This paper analyzes the economic role of media in the market based on the background of information trend, combining finance theory and statistical software tool, we are going to study the relationship between media and stock price, and then explore the impact of media attention of the specific role on stock price of IPO companies. On the other words, the paper explains the stock price volatility from the perspective of media attention.In the research content, the paper selects GEM as data sample and the stock samples are the basic elements of empirical analysis process about. We try to explore the function paths of media attention based on the samples. During the theoretical analysis stage, the paper reviews relevant literatures, collects information of media theory, defines IPO underpricing theory and goes over the long-term price fluctuation theory, the first step reflect interaction between media attention and stock prices. Besides, stock prices are investigated in both short-term and long-term, which represent IPO underpricing and CAR respectively. We also review the reform of IPO system of China and conclude the current situation of GEM. Next stage, we focus on behavioral finance after the explanation of economic information theory and behavioral finance theory at two levels. The most important part of this stage is presenting the limited investor attention hypothesis, with two different paths are proposed in view of the limited attention, we do the empirical analysis to prove them. The research window of the analysis is chose the first day of initial public offerings, and we firstly test the impact of media attention on IPO underpricing, then introduce two variables as an intermediary path variables, testing the very two intermediary paths, after this, we calculate the long-term stock price of monthly cumulative abnormal return to re-examination for the unique path. In the intermediary path testing phase, we introduce the mediating effect test model to calculate the proportion of the total effect of the function path. Considering the research methods, this paper makes a combination analysis of the literature reviews and theoretical studies; the purpose of the link is to find the entry point of the research. We also mix the empirical analysis and normative analysis, giving a reasonable result and propose some policy recommendations. The samples of the paper select IPO companies of GEM from October30,2009to October9,2012, all of the samples are picked after distribution system reform has already finished, because it can, to some extent, avoid interferences of policy factors. We also employ media coverage frequency to substitute media attention, as we know, the higher frequency of media report, the higher level of media attention. Media information is picked prior to the IPO event, since the reports before IPOs are non-negative media information; this measure is the key to construct a "clean" research environment. The paper summarizes the media information theories and IPO underpricing theories in the perspective of behavioral finance, according to different degree ration level of the investors, we divided the stock price volatility effect into two paths:the investor sentiment path and the investment cognitive path. We use IPO turnovers and securities analysts’number to be the agents’ variables, and use IPO underpricing and CAR to give a glimpse to short-term and long-term price fluctuations. The control variables are considering three aspects:enterprise characteristics, IPO characteristics and market characteristics. The second step of the research is to make hypotheses and build models. Three assumptions are established to test and verify the reasonableness and significance of these two paths, we then calculate the extent of significant path mediating effect. The long-term stock price volatility is achieving the analysis in the method of re-verify. The final step of empirical research of this paper is the robustness test.The results of this paper show that the stock prices of listed companies of GEM can be affected by media attention. In the short run, the media attention is significant positive correlation with IPO underpricing, that is to say, media attention effect is not explained by the information risk compensation theory but by the configuration of the limited investor attention theory. On the circumstances of limited investor attention, media report can influence the investor by the path of investor sentiment effect. The result implies that media attention can incite investor sentiment and turn out to be irrational investment atmosphere, which driving up the IPO underpricing. In the long run, the CAR of the samples witness a continuing weakness of market performance1-14months after the IPOs, which showing the overall price tendency of the IPO companies. We also make a classification about CAR and find that high media attention samples have a lower CAR than the low media attention manufactures; the higher degree of media attention, the more serious stock price performance in the long-term. The results have also proved that the reason of "media effect" in the GEM market is excessive media attention weakness theory rather than information risk compensation theory.This paper analyzes the impact of media attention on stock price, information dissemination role of media has a responsibility to be the information "gatekeepers", media attention influence investor behavior and thus affect the stock price. The results prove that high media attention caused high IPO underpricing, and we find that the intermediary path of media report is investor sentiment effect. Sentiment investors make irrational investment behaviors, which bring about abnormal stock trading and the upgrading the demand of stocks, this will undoubtedly result in the phenomenon of IPO underpricing. The stock prices also appear long-term weakness and more fluctuates of the IPO companies. According to the result, the paper proposes policy recommendations in three levels including investors, media and regulators. Relevant recommendations involve the following details:Optimization of market structure, enhancing the rational level of the market, educating investors and reminding investors timely to prevent irrational invest behaviors, strengthening the regulatory regime about media, implementing stronger measures to punish the interest collusion of media in order to pure media industry.