“Media Coverage, Mutual Fund Trading and Performance” by Lu Zheng
University of California at Irvine
Lily H. Fang
We study the relation between mutual fund trades and mass-media coverage of stocks. Stocks receiving high media coverage are more heavily traded by funds in the aggregate. Cross-sectionally, there is substantial heterogeneity in funds' propensity to trade high-coverage stocks, and this propensity has a negative relation with fund performance. Funds in the lowest propensity-to-buy decile out-perform funds in the highest propensity decile by about 2% per year after standard risk adjustments. Moreover, such propensities are persistent. These results suggest that professional investors are subject to limited attention, and such behavior has negative return implications.