News Selection and Asset Pricing Implications

43 Pages Posted: 26 Aug 2022

See all articles by Charles Martineau

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Jordi Mondria

University of Toronto - Department of Economics

Date Written: August 19, 2022

Abstract

This paper builds a theoretical framework to endogeneize the editorial decisions of media and analyze their asset pricing implications. The media outlet optimally reports man-bites-dog signals by choosing to report about the firm that generates more uncertainty to investors. There are three main implications of the model. First, the editorial choice is state-dependent and not only has asset pricing implications for reported firms, but also for non-reported firms. Second, the model generates an asymmetric response of asset prices to positive and negative news. Specifically, the asset price reaction is much stronger for negative news than for positive news. Third, public information does not necessarily crowd out the acquisition of private information. Failing to capture the information implications of editorial choices may lead the econometrician to estimate a misspecified asset pricing model. We provide empirical evidence inline with the model predictions.

Keywords: News, Media, Asset Prices, Information Acquisition, Public Information

JEL Classification: G10, G12, G14

Suggested Citation

Martineau, Charles and Mondria, Jordi, News Selection and Asset Pricing Implications (August 19, 2022). Available at SSRN: https://ssrn.com/abstract=4194851 or http://dx.doi.org/10.2139/ssrn.4194851

Charles Martineau (Contact Author)

University of Toronto - Rotman School of Management and UTSC Management ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

Jordi Mondria

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
1-416-978-1494 (Phone)

HOME PAGE: http://individual.utoronto.ca/jmondria/

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