Bad News Bearers: The Negative Tilt of the Financial Press

35 Pages Posted: 9 Aug 2018 Last revised: 4 Oct 2018

See all articles by Marina Niessner

Marina Niessner

Yale School of Management; AQR Capital Management, LLC

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: September 2018

Abstract

We show the financial press is more likely to cover firms with deteriorating performance. Our main tests illustrate the nature of the media's story selection process (i.e., what events to cover) and the usefulness of this selection process for forecasting firms' future earnings news and returns. We first show the media is approximately 11-to-19 percent more likely to cover a firm's earnings announcements if they convey poor performance. Similarly, in forecasting tests, greater media coverage predicts subsequently announced declines in firms' profitability and negative analyst-based earnings surprises. A simple long-short strategy betting against firms with high media coverage yields an average return of roughly 40 basis points per month, suggesting media coverage helps forecast future returns because the story selection process is titled toward novel negative events. Together, our findings highlight the usefulness of the media's coverage decisions in estimating expected returns, as well as a potential inference problem when researchers use media coverage to measure the extent of information dissemination and/or whether an information event occurred.

JEL Classification: G10, G11, G12, G14, M40, M41

Suggested Citation

Niessner, Marina and So, Eric C., Bad News Bearers: The Negative Tilt of the Financial Press (September 2018). Available at SSRN: https://ssrn.com/abstract=3219831 or http://dx.doi.org/10.2139/ssrn.3219831

Marina Niessner (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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