News Selection and Asset Pricing
44 Pages Posted: 26 Aug 2022 Last revised: 1 Nov 2023
Date Written: October 31, 2023
We build a theoretical framework to endogenize 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 firms that generate more uncertainty for investors. The model has three implications. First, the editorial choice is state-dependent and has asset pricing implications for reported firms and non-reported firms. Second, it generates an asymmetric response of asset prices to positive and negative news. Finally, public information does not necessarily crowd out the acquisition of private information. Ignoring the information implications of editorial decisions can result in misspecified asset pricing models.
Keywords: News, Media, Asset Prices, Information Acquisition, Public Information
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation