41 Pages Posted: 24 Oct 2010 Last revised: 14 Oct 2011
Date Written: October 22, 2010
Using a Vector Autoregression framework, this paper investigates the dynamic relationship between the intensity of negative media speculation and the market performance of financial institutions. Evidence is provided that over the sub-prime crisis period pessimistic coverage Granger-caused the returns on banking indices, while causality in the opposite direction proved weaker. These findings may imply that journalists not only report on the state of economic reality, but also play an active role in creating it. Investors acting upon sentiment implicit in media reports would have been able to improve their investment performance, as measured by Sharpe ratios and Jensen’s alphas.
Keywords: Media, Stock Market, Financial Crisis, Self-fulfilling Prophecies
JEL Classification: G01, G11, G21
Suggested Citation: Suggested Citation
Wisniewski, Tomasz Piotr and Lambe, Brendan John, The Role of Media in the Credit Crunch: The Case of the Banking Sector (October 22, 2010). Available at SSRN: https://ssrn.com/abstract=1696105 or http://dx.doi.org/10.2139/ssrn.1696105