Time-varying Media Coverage and Stock Returns
43 Pages Posted: 18 Feb 2021 Last revised: 22 Mar 2021
Date Written: March 22, 2021
I show that news editors have state-dependent preference for different types of firms. Using the New York Times data and natural language processing techniques, I estimate the loadings of media coverage on eight common features of firms and construct the corresponding editor preference. I find that firms with higher editor preference earn higher returns than those with lower preference on average. It is consistent with the theory that if investors delegate their information selection to news editors, the state-dependent coverage decisions signal risky features and hence related firms are required more risk compensation. This excess return cannot be explained by mainstream risk factors and has an annualized alpha around 12%. Although this excess return is robust among more firms that are out of the scope of news data, it is bound to a short time horizon.
Keywords: asset pricing, media coverage, risk factor
JEL Classification: G12, G14
Suggested Citation: Suggested Citation