Media-expressed negative tone and firm-level stock returns

Ahmad, Khurshid, Han, Jingguang, Hutson, Elaine, Kearney, Colm and Liu, Sha (2016) Media-expressed negative tone and firm-level stock returns. Journal of Corporate Finance, 37, 152-172. (doi:10.1016/j.jcorpfin.2015.12.014).

Abstract

We build a corpus of over 5½ million news articles on 20 large US firms over the 10-year period from January 2001 to December 2010, and use it to study the time-varying nature of the relation between media-expressed firm-specific tone and firm-level returns. By estimating a series of separate rolling window vector autoregressive (VAR) models for each firm, we show how media-expressed negative tone impacts firm-level returns episodically in ways that vary across firms and over time. We find that firms experience prolonged periods during which media-expressed tone has no effect on returns, and occasional episodes when it has a significant impact. During the significant episodes, its impacts are sometimes quickly reversed and at other times they endure – implying that media comment and analysis can sometimes be sentiment (or noise), but it can also contain value-relevant information or news. Our findings are in general consistent with efficiently functioning markets in which the media assists with the processing of complex information

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