Political Polarization in Financial News

Abstract

Standard explanations for the political polarization of the news do not apply to financial news. Nevertheless, comparing coverage of the same firm-specific events by newspapers with opposing ideologies, we find strong evidence of political polarization in corporate financial news on both the intensive and extensive margins of coverage. We show that politics-induced disagreement in financial news about a stock leads to an increase in trading in that stock, and herding by investors who read the same news, indicating that political polarization leads to information segregation among investors.

Keywords: Media bias, Financial news, Finance and politics, Textual analysis, Trading volume, Individual investors

JEL Classification: G30, G12, G14, D72