Media-Expressed Negative Tone and Firm-Level Stock Returns

62 Pages Posted: 4 Jan 2016 Last revised: 5 Apr 2016

See all articles by Khurshid Ahmad

Khurshid Ahmad

Trinity College (Dublin)

Jingguang Han

University of Southampton

Elaine Hutson

Monash University - Dept of Banking and Finance; Financial Research Network (FIRN)

Colm Kearney

Monash University - Monash Business School

Sha Liu

University College Dublin

Date Written: December 21, 2015

Abstract

We build a corpus of over 5½ million news articles on 20 large US firms over the 10-year period from January 2001 to December 2010, and use it to study the time-varying nature of the relation between media-expressed firm-specific tone and firm-level returns. By estimating a series of separate rolling window vector autoregressive (VAR) models for each firm, we show how media-expressed negative tone impacts firm-level returns episodically in ways that vary across firms and over time. We find that firms experience prolonged periods during which media-expressed tone has no effect on returns, and occasional episodes when it has a significant impact. During the significant episodes, its impacts are sometimes quickly reversed and at other times they endure -- implying that media comment and analysis can sometimes be sentiment (or noise), but it can also contain value-relevant information or news. Our findings are in general consistent with efficiently functioning markets in which the media assists with the processing of complex information.

Keywords: Textual analysis; media-expressed tone; negative sentiment; news; market efficiency

JEL Classification: G14, G39

Suggested Citation

Ahmad, Khurshid and Han, Jingguang and Hutson, Elaine and Kearney, Colm and Liu, Sha, Media-Expressed Negative Tone and Firm-Level Stock Returns (December 21, 2015). Journal of Corporate Finance, 37 (2016), 152-172, Available at SSRN: https://ssrn.com/abstract=2710283

Khurshid Ahmad

Trinity College (Dublin) ( email )

2-3 College Green
Dublin, D2
Ireland

Jingguang Han

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Elaine Hutson (Contact Author)

Monash University - Dept of Banking and Finance ( email )

PO Box 197
Caulfield East, Victoria 3145
Australia
+61399032110 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Colm Kearney

Monash University - Monash Business School ( email )

Sir John Monash Drive
Caulfield
Melbourne, Victoria 3168
Australia
+353399031021 (Phone)

Sha Liu

University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

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