The Causal Impact of Media in Financial Markets

Disentangling the causal impact of media reporting from the impact of the events being reported is challenging. We solve this problem by comparing the behaviors of investors with access to different media coverage of the same information event. We use zip codes to identify 19 mutually exclusive trading regions corresponding with large U.S. cities. For all earnings announcements of S&P 500 Index firms, we find that local media coverage strongly predicts local trading, after controlling for earnings, investor, and newspaper characteristics. Moreover, local trading is strongly related to the timing of local reporting, a particular challenge to nonmedia explanations. *Engelberg and Parsons are with Kenan-Flagler Business School, University of North Carolina at Chapel Hill. We thank Aydoğan Altı, Nick Barberis, Stefano DellaVigna (discussant), Mike Fishman, Matthew Gentzkow, Jay Hartzell, David Hirshleifer, David Matsa, Mitchell Petersen, Robert McDonald, Jesse Shapiro, Paul Tetlock (discussant), Sheridan Titman, Luigi Zingales, two anonymous referees, the associate editor and the editor. We also thank seminar participants at the NBER Behavioral Economics Meeting, the Financial Research Association Conference, Northwestern University, and Texas A&M University for helpful feedback and discussions. We thank Terry Odean for providing the large discount brokerage data. All errors are our own.