An Analysis Of The Effect Of Information Activism On Capital Markets PDF Download

Recent years have brought about tremendous growth in easily accessible investment information sources. The rapid expansion of cable news networks such as CNBC as well as the Internet blogosphere allows investors to receive around-the-clock advice, analysis, and commentary. This research suggests that investment information relayed from these sources may not always be objective analysis for the sole purpose of educating investors, but often investors are urged to act in a particular manner regarding their investment decisions, defined in this study as information activism. Information activism is intentional action stemming from formal and informal sources which provide supplemental communication intended to form and/or sway investor behavior for one or more firms or industries. Anecdotal cases as well as empirical research provide evidence that information activism affects capital markets. This study builds upon and expands empirical evidence, while examining the differential effects of two primary sources of information activism; cable news and financial blogs. In order to understand how information activism affects capital markets, key investor behavior responses, price reaction and trading volume, are examined on the days surrounding the information activism events. The theories of risk aversion (Friedman and Savage 1948) and loss aversion (Kahneman and Tversky 1979) suggest that investors may particularly rely on sources of investment information during unstable economic conditions. The financial crisis of 2008 provides a unique economic environment to examine the effects of information activism on investor behavior during divergent market conditions. Important moderating effects suggested by further relevant theories are also examined regarding investor sophistication, information asymmetry, and earnings quality. In addition to the analysis of immediate short-window responses of information activism on capital markets, a long-window reaction is also examined over divergent market condition periods in order to investigate the intensity and sentiment of information activism. Consistent with expectations investors appear to react to information activism through price and trading volume measures. Some support is offered to suggest that investors react to the sentiment of information activism, as positive information activism is associated with higher prices. In contrast to expectations, there is no indication that investor sophistication moderates the relationship between information activism and investor behavior. However, there is some support to suggest that market condition, information asymmetry, and earnings quality may be important to the relationship between information activism and investor behavior. This research contributes to academic literature in several ways. The construct of information activism is introduced to further understand investor behavior in capital markets. This study provides a cross-sectional examination of two primary sources of information activism as well as important moderating effects not yet examined. Additionally, the intensity and sentiment of information activism is analyzed, while these measures have been overlooked in prior empirical work. This research contributes to the debate regarding the role of the news media on investor behavior as well as ongoing studies related to investor sophistication and information asymmetry. Finally, this dissertation contributes to the literature regarding the increasing demand, necessity, and importance of supplemental information in shaping investor decision-making.