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
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