Abstract
This study investigates the impact of internet articles, such as blogs or internet community posts, on investors’ trading decisions in response to uncertain news (i.e., rumors). Leveraging the unique disclosure requirement in Korea, which verifies rumors via firm disclosures, we are able to identify trading activities associated with rumors. We find that internet article coverage affects individual investors’ decisions, but not those of institutional investors. Moreover, the post-disclosure returns deteriorate only for individual investors with internet article coverage. Overall, these results suggest that internet articles adversely affect individual investors’ trading decisions on rumors, resulting in a wealth transfer from individual investors to institutional investors.
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