Media-Expressed Negative Tone and Firm-Level Stock Returns
62 Pages Posted: 4 Jan 2016 Last revised: 5 Apr 2016
Date Written: December 21, 2015
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: Suggested Citation