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It is challenging to disentangle the causal impact of media reporting from the impact of the events being reported. The authors solve this problem by comparing the behaviors of investors with access to different media coverage of the same information event. They use zip codes to identify 19 mutually exclusive trading regions, corresponding to 19 large U.S. cities and local newspapers (e.g., the Houston Chronicle). For all earnings announcements of S&P 500 Index firms, they find that local media coverage strongly predicts local trading, after controlling for characteristics of the earnings surprise, firm, local investors, and reporting newspaper(s).
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