Media and the Stock Market: A CAT and CAR Analysis
42 Pages Posted: 21 Jun 2018 Last revised: 10 May 2019
Date Written: May 8, 2019
We introduce the Cumulative Abnormal Tone (CAT) event study methodology for analyzing the dynamic relationship between printed media news and cumulative abnormal returns (CAR) around events. We apply the CAT event study methodology to media news about the firm published in a window around the quarterly earnings announcements of non-financial S&P 500 firms over the period 2000-2016. We document that there is an abnormal media tone not only on the three days around the earnings announcement, but that there is a substantial drift in the days following the announcement. We also find that the media tone is more sensitive to negative earnings surprises than positive ones. Finally, we report empirical evidence that the abnormal tone of web publications at the earnings announcement date predicts a stock price reversal in the month following the announcement.
Keywords: abnormal return, abnormal tone, earnings announcements, event study, news media, sentometrics
JEL Classification: G14, G17, M40
Suggested Citation: Suggested Citation