Media Makes Momentum

Abstract

Relying on more than 2.2 million articles from 45 national and local U.S. newspapers, we explore the link between (excess) press coverage and momentum profitability. From 1989 to 2010, firms particularly covered (neglected) by the media exhibit ceteris paribus significantly stronger (weaker) momentum. Put differently, return predictability is strongest for firms in the spotlight. This finding is robust and also withstands recent critique regarding the interaction of stock characteristics and momentum established in previous studies. Digging deeper, we find that the effect is stronger in US states with higher investor individualism and among stock predominantly held by overconfident fund managers. In line with prominent models, our results collectively support an overreaction-based explanation of the momentum effect.

Keywords: media, momentum, individualism, overconfidence, overreaction

JEL Classification: G12, G14