Market reaction to second-hand news: inside the attention-grabbing hypothesis

This article investigates whether the market reaction to second-hand information
is due to price pressure or information dissemination. We use the perspective of
attention grabbing to analyse the market reaction to the dissemination of analysts’
recommendations published in print media. This perspective is able to explain the
asymmetric market reaction to ‘buy’ and ‘sell’ advice, which is difficult to
rationalize within the price pressure hypothesis. We base our empirical analysis
on the content of a weekly column in the most important Italian financial newspaper,
which publishes past information and analysts’ recommendations on listed
companies. Our findings show asymmetric price and volume reactions on the
publication day. Contrary to previous evidence, we document a positive relationship
between the number of analysts quoted in the column and the price (volume)
increase associated with positive recommendations. Because the weekly columns
seem to simply attract investors’ attention, with no additional new information,
observing a reaction positively related to the column’s salience (proxied by the
number of quoted analysts) is natural. In addition, we find that the market reaction
is higher when the order size is lower, i.e., when individual investors’ trades
constitute a higher fraction of the total trading activity in the market.