The Role of Media in Finance
Friday, Jan. 4, 2019 8:00 AM - 10:00 AM
- Chair: Paul Tetlock, Columbia University
Beyond Attention: The Causal Effects of Media on Information Production
AbstractThis paper shows that media coverage causes investors to gather more information and analysts to produce more earning forecasts. I exploit random variation in the visual salience of corporate press releases to financial journalists as an instrument to media coverage. Doubling the amount of media coverage increases the number of EDGAR searches by 31% and the number of analysts issuing earnings forecasts by 78% in a two-day period. The evidence is most consistent with the theory of rational attention allocation: sophisticated investors acquire more information for media-covered events as media coverage signals higher variances of returns, and thus higher payoffs from having more precise information. Analysts cater to the increased information demand from institutional investors by responding to media-reported events. The results suggest that different information channels do interact, and financial media complements other channels.
Home-country Media Slant and Equity Prices
AbstractDo national newspapers slant the presentation of the news to cater to the preferences of their home-country readers? If so, does media slant affect investor behavior across countries? We address these questions by analyzing media coverage of the automotive industry in the US, Germany, and Japan. We use detailed news data, coded by trained native speakers, covering over 190,000 newspaper articles on auto manufacturers during 2007–2016. We find that national newspapers report systematically more favorably about home auto manufacturers than about foreign auto manufacturers. Results hold across all countries, for a subset of large national newspapers, and for each country pair. The evidence is robust to controlling for selective media coverage and various supply-side effects. The home-country media slant is strongest for news that is more difficult to verify, and it becomes substantially higher during bad times for companies, such as around major auto scandals, on the announcement days of car recalls, and at times of low market valuations. We also find confirming evidence for catering to home readers in international editions of the Wall Street Journal. The home-country media slant appears to have a strong effect on equity investors. Differences in media reporting across countries predict stock price deviations of cross-listed stocks. An investment strategy of “betting against the home media” yields abnormal monthly returns in excess of 2%.
Guru Dreams and Competition: An Anatomy of the Economics of Blogs
AbstractThe rise of social media has encouraged guru dreams because of its low entry barrier and highly skewed distribution of rewards (public attention). The pursuit of guru status, however, may be achieved through information provision or cheap talk, and competition inherent to social media may incentivize participants to either process better information or resort to more extreme options. Using a unique dataset of blogs covering S&P 1500 stocks over the 2006-2011 period, we find evidence that blog tones can predict future stock returns. However, competition distorts opinions rather than encouraging better processing of information, leading to more exaggerated negative tones. Tests based on plausibly exogenous variations in competition introduced by the exiting of bloggers confirm this finding. Our results suggest that competition may distort the incentives for informed social media participants to supply information.
University of Southern California
University of Chicago
AQR Capital Management
- G1 - General Financial Markets