Mass Media Influence

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Are investors influenced by mass media when making decisions? To what extent newspapers affect stock choices? Is the influence of mass media just a short-term effect? The first thing to consider is to properly define mass media, and what is meant by mass media influence. The influence that media have on the public is not considered solely on the information conveyed, but mainly on the coverage that media have, how the information are reported, the difference in style of authors and most importantly the fact that a given information is reported over another. The most important aspect considered is therefore the impact that a certain story about a company, when reported by media, has on the public, and not the degree of importance of reported…show more content…
This happens because few attentive investors obtain information and their actions are reflected promptly in the prices of the stock in question. The investments of households and small investors, instead are not based on the information embedded in the stock prices but mostly on their past prices, which doesn't make sense, from a statistical point of view, since prices follow a random walk. This means that the majority of the investors are not rational and their investments should create an irrational market, but it is enough that a small part of very big investors place their funds in a rational way to bring the market back on track. This reasoning follows the theory of the efficient market hypothesis formulated by Fama in 1969. The high number of inconsistencies of this hypothesis with the market, such as the small-firm and the January effects, brought scholars to think that the market is indeed not efficient and thus it can be influenced by outside…show more content…
The companies were chosen on the basis of recent scandals. The analysis shows that there are both short-term and long-term effects on certain companies. However, it is difficult to understand how much media contributed to the reaction of stock prices. Initially, I looked at the titles of known newspapers to understand if the story was covered by media. Furthermore, I used Google Trends as a proxy to the coverage of information. Results show that companies with the biggest public visibility, and which are subject to frequent researches by individuals are the ones that show the biggest stock

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