Rumor Has It: Sensationalism in Financial Media
Review of Financial Studies, 2015, vol. 28(7): 2050-2093
140 Pages Posted: 14 May 2013 Last revised: 30 Mar 2016
Date Written: December 12, 2014
Abstract
The media has an incentive to publish sensational news. We study how this incentive affects the accuracy of media coverage in the context of merger rumors. Using a novel dataset, we find that accuracy is predicted by a journalist’s experience, specialized education, and industry expertise. Conversely, less accurate stories use ambiguous language and feature well-known firms with broad readership appeal. Investors do not fully account for the predictive power of these characteristics, leading to an initial target price overreaction and a subsequent reversal, consistent with limited attention. Overall, we provide novel evidence on the determinants of media accuracy and its effect on asset prices.
Keywords: Sensationalism, rumors, media, journalists, mergers, acquisitions
JEL Classification: G14, G34, L82
Suggested Citation: Suggested Citation