1. Foreign Investment under the Spotlight of Home Media
- Author
-
Bohui Zhang, Wai-Man Liu, and Jing Yu
- Subjects
History ,Economics and Econometrics ,Polymers and Plastics ,business.industry ,Media coverage ,Foreign direct investment ,Monetary economics ,Investment (macroeconomics) ,Industrial and Manufacturing Engineering ,Accounting ,Information source ,Business and International Management ,business ,International finance ,Stock (geology) ,Disadvantage ,Mutual fund ,Finance - Abstract
Foreign investors’ information disadvantage is often viewed as a key impediment to their investment. This study questions whether foreign investors’ home media mitigates this information barrier by investigating the relation between U.S. mutual fund ownership and U.S. media coverage of local stocks in their host countries. Using a large sample of 38 host countries, we document a positive association between U.S. mutual fund ownership in a local stock and the coverage of U.S. major news providers on that stock. We find that home media-covered stocks incur lower information acquisition costs and gain greater investor awareness from U.S. investors. The home media effect is most salient in host countries with low quality information environments, supporting a novel home media effect that foreign investors tend to rely on their home market media coverage as an information source. The home media effect helps explain the prominent international finance anomaly regarding the dependence of firm returns on home and foreign market factors.
- Published
- 2022