Home-Country Media Slant and Equity Prices
68 Pages Posted: 13 Jun 2019 Last revised: 6 Jan 2021
Date Written: March 31, 2020
We study national newspaper reporting and investor beliefs across the U.S., Germany, and Japan. Using novel large-scale hand-coded media data for the automotive industry, we show that news about companies is systematically more positive in companies’ home countries than abroad. Home-country media slant increases during bad times for companies, and it correlates strongly with equity prices. Cross-country difference in news tone predicts temporary price deviations of cross-listed stocks. Abnormally high home-media news tone predicts low monthly domestic stock returns. The effects are strongest for confirmatory news and weakest when home-biased investors are likely distracted by sporting events.
Keywords: media slant, media bias, textual analysis, investor sentiment, cross-listed stocks, confirmatory bias
JEL Classification: L82, D23, F23
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