Media Coverage and Abnormal Trading Volume

Abstract: In this study, we examine the media coverage effect on abnormal trading volume using two frameworks: divergence of opinion and information asymmetry. Our sample consists of 420 Swedish small cap firms and includes 125 000 articles from over 800 Swedish media sources. Utilising three definitions of abnormal trading volume, we find that media coverage of a stock leads to positive abnormal trading volume for that stock. Media coverage on any given day increases divergence of opinion and decreases information asymmetry among investors. The media coverage effect is dependent on both the frequency and source of coverage. We find that sources with broad information dissemination have greater impact on investor behaviour than sources with narrow dissemination and that information dissemination rather than production is more impactful for firms with low investor recognition. Further, the media coverage effect on divergence of opinion is stronger for firms with high investor recognition. However, the media coverage effect on information asymmetry is not stronger for firms with high investor recognition but instead, decreases with firm size. Thus, our results suggest an important distinction between the two frameworks.