This thesis examines the role of the media in stock markets and the role of transparency in investment decisions. In the first two chapters, I investigate how the contrasting trends in media coverage and earnings guidance have affected stock price informativeness over the past two decades. I develop a model to understand what trade-offs investors face when acquiring information through the media and how earnings guidance changes those trade-offs. In the model, the effects of media coverage and earnings guidance on price informativeness are ambiguous. To resolve this ambiguity, I empirically test which predictions of the model are supported by the data. I show that, contrary to the common belief, high media coverage can cause lower price informativeness. Motivated by the model, I propose a new empirical measure of media coverage, which better gauges the informational contents of news. I also find that the impact of earnings guidance on price informativeness depends on media coverage. Earnings guidance improves price informativeness only at high levels of media coverage. In the third chapter, we document that part of the theoretical results favoring full transparency is due to a missing channel: complementarities between assets. We question the role and effectiveness of public information as a coordination device in a setting where complementarities exist within an asset (intra-asset complementarity) and between assets (inter-asset complementarity). The introduction of inter-asset complementarity increases strategic uncertainty and makes the coordinating role of public information more prominent. The results indicate that more transparency is not always optimal from a social perspective. Full transparency is optimal if agents have access to relatively more precise private information and complementarities are sufficiently low. More transparency otherwise reduces social welfare as the gain from better intra-asset coordination is outweighed by the loss resulting from lesser inter-asset coordination. The non-monotonic impact of transparency on social welfare remains valid with more than two assets as long as sufficient number of assets are strategic complements to each other in an intra- and inter-related manner and those complementarities are sufficiently high.

Creator

• Topbas, Yunus

DOI

• https://doi.org/10.21985/n2-qxk1-tt41

Subject

• Finance

Language

• en

Alternate Identifier

• etdadmin_upload_889149
• http://dissertations.umi.com/northwestern:15976

Date created

• 2022-01-01

Resource type

• Dissertation

Rights statement

• In Copyright