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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

Kenneth R. Ahern

University of Southern California - Marshall School of Business; National Bureau of Economic Research (NBER)

Denis Sosyura

Arizona State University

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

Ahern, Kenneth R. and Sosyura, Denis, Rumor Has It: Sensationalism in Financial Media (December 12, 2014). Review of Financial Studies, 2015, vol. 28(7): 2050-2093. Available at SSRN: https://ssrn.com/abstract=2264468 or http://dx.doi.org/10.2139/ssrn.2264468

Kenneth Ahern

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~kahern/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Denis Sosyura (Contact Author)

Arizona State University ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://www.public.asu.edu/~dsosyura/

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