Political Polarization in Financial News

47 Pages Posted: 24 Feb 2020

See all articles by Eitan Goldman

Eitan Goldman

Indiana University - Kelley School of Business - Department of Finance; European Corporate Governance Institute (ECGI)

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance

Ryan D. Israelsen

Michigan State University - Department of Finance

Date Written: February 13, 2020

Abstract

Political news is known to be polarized, but standard explanations for polarization do not apply to financial news. Nevertheless, we find strong evidence of political polarization in the tone and coverage of corporate financial news. In particular, we find that the tone of corporate financial news coverage is more positive, and the likelihood that good (bad) news is reported is higher (lower), if the firm is politically aligned with the news source. Such polarization implies that different market participants may be exposed to differing news about the same firm on the same day. Consistent with this argument, we find that disagreement between news sources increases trading volume, and these effects are larger for firms at the political extremes. Our paper highlights a novel source of bias in financial news that can be important for investors.

Keywords: Media slant, Financial news, Finance and politics, Trading volume

JEL Classification: G30, G12, G14, D72

Suggested Citation

Goldman, Eitan and Gupta, Nandini and Israelsen, Ryan D., Political Polarization in Financial News (February 13, 2020). Available at SSRN: https://ssrn.com/abstract=3537841 or http://dx.doi.org/10.2139/ssrn.3537841

Eitan Goldman

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-856-0749 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Nandini Gupta (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)

Ryan D. Israelsen

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

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