Media and Finance

Paper Session

Friday, Jan. 6, 2017 8:00 AM – 10:00 AM

Sheraton Grand Chicago, Sheraton Ballroom IV
Hosted By: American Finance Association
  • Chair: Kenneth Ahern, University of Southern California

Anomalies and News

Joseph Engelberg
,
University of California-San Diego
David McLean
,
Georgetown University
Jeffrey Pontiff
,
Boston College

Abstract

Using a sample of 97 stock return anomalies, we find that anomaly returns are 7 times higher on earnings announcement days and 2 times higher on corporate news days. Anomaly variables also predict analyst earnings forecast errors: analysts’ earnings forecasts are too low for anomaly-longs, and too high for anomaly-shorts. We develop and conduct several unique data mining tests, and find that data mining cannot explain our findings. Our results support the view that anomaly returns are the result of biased expectations, which are at least partially corrected upon news arrival.

Assignment of Stock Market Coverage

Briana Chang
,
University of Wisconsin-Madison
Harrison Hong
,
Columbia University

Abstract

Price efficiency plays an important role in financial markets. Firms influence it, particularly when they issue public equity. They can hire a reputable underwriter with a star analyst to generate public signals about profits to reduce uncertainty and increase valuations. We develop an assignment model of this labor market. The value of a match between firms, that differ in multiple dimensions, and agents, that differ in precision, is endogenously generated from a stock-market equilibrium. We characterize the multidimensional-to-one assignment and obtain testable predictions. Extensions allow firms to value efficiency for other reasons and apply to other labor markets like media-or-investor relations professionals.

The Momentum of News

Ying Wang
,
Central University of Finance and Economics
Bohui Zhang
,
University of New South Wales
Xiaoneng Zhu
,
Shanghai University of Finance and Economics

Abstract

Relying on a comprehensive data set of news releases, we construct monthly firm-level news sentiment scores during the 2000–2014 period and document a news momentum phenomenon that stocks with more positive news in the past generate more positive news in the future. We propose two hypotheses to explain this phenomenon and find that news momentum is driven by the persistence of firms’ fundamentals instead of firms’ information environments. A trading strategy, which combines a long position in a good-news quintile portfolio with a short position in a bad-news portfolio, generates 8.352 percent risk-adjusted return annually. This return anomaly appears on both news and non-news days. Overall, these findings suggest that the cross-sectional prediction of news is not fully incorporated into the stock price by investors.

It Depends on Where You Search: Institutional Investor Attention and Under-reaction to News

Azi Ben-Rephael
,
Indiana University
Zhi Da
,
University of Notre Dame
Ryan Israelsen
,
Indiana University

Abstract

We propose a direct measure of abnormal institutional investor attention (AIA) using news searching and news reading activity for specific stocks on Bloomberg terminals. AIA is highly correlated with institutional trading measures and related to, but different from, other investor attention proxies. Contrasting AIA with retail attention measured using Google search activity, we find that institutional attention responds more quickly to major news events, leads retail attention, and facilitates permanent price adjustment. The well documented price drifts following both earnings announcements and analyst recommendation changes are driven by announcements where institutional investors fail to pay sufficient attention.
Discussant(s)
David Solomon
,
University of Southern California
Diego Garcia
,
University of Colorado
Paul Tetlock
,
Columbia University
Denis Sosyura
,
University of Michigan
JEL Classifications
  • G1 - General Financial Markets