Individual investor ownership and the news coverage premium

If widely-circulated news providers cater to the information demands of individual investors, stocks with high individual ownership should receive more news coverage, theoretically resulting in lower volatility and a lower cost of capital. In this paper, I explore this hypothesis by utilizing the extensive news sources available in Bloomberg Terminals to construct a monthly panel dataset of S&P 500 firms between 2012 and 2019. I verify that companies with a higher percentage of individual investor ownership receive more news coverage, and that this effect is strongest among larger firms. In order to quantify the importance of this mechanism for stock prices, I estimate a panel VAR model and conduct a counterfactual analysis where the news coverage response to exogenous shifts in ownership composition is effectively "shut off". The counterfactual analysis implies that an increase in news coverage triggered by a one standard deviation rise in individual ownership reduces annual stock volatility by 0.51% and annual returns by 0.135%, suggesting that the individual investor-news coverage channel partially offsets the more welldocumented informational advantages of institutional ownership. (c) 2021 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.