Media and Finance
Friday, Jan. 6, 2017 1:00 PM – 3:00 PM
- Chair: Kenneth Ahern, University of Southern California
Assignment of Stock Market Coverage
AbstractPrice 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
AbstractRelying 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
AbstractWe 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.
- G1 - Asset Markets and Pricing