The Media and the Diffusion of Information in Financial Markets : Evidence from Newspaper Strikes

This paper investigates the causal impact of the media in financial markets by exploiting exogenous media blackouts resulting from national newspaper strikes in several countries. Trading volume falls 14% on strike days. Stock volatility is also reduced, especially within the day, during which it falls by 9%. These effects are stronger for small firms. Moreover, the power of lagged stock returns for predicting current returns of small firms vanishes on media strike days, consistent with newspapers propagating news from the previous day. These findings demonstrate that the media influence the stock market by increasing the speed with which information diffuses across investors, and is impounded into stock prices