Media Narratives and Price Informativeness

57 Pages Posted: 12 Jan 2023 Last revised: 30 Jan 2023

See all articles by Chukwuma Dim

Chukwuma Dim

George Washington University

Francesco Sangiorgi

Frankfurt School of Finance & Management

Grigory Vilkov

Frankfurt School of Finance & Management

Date Written: January 12, 2023

Abstract

We theoretically and empirically show that stock return exposure to media narratives’ attention, measured with standard methods for extracting topic attention from news text, is linked to lower stock price informativeness about future fundamentals. In the model, narrative exposure proxies for media bias-driven return volatility and is inversely related to price informativeness. Empirically, narrative exposure significantly decreases price informativeness and explains over 82% of idiosyncratic variance in the cross-section. Consequently, idiosyncratic variance and variance related to public information decrease stock price informativeness. Moreover, stocks affected by large average narrative shocks demonstrate elevated trading volume.

Keywords: media narratives, price informativeness, undervaluation, idiosyncratic risk, arbitrage, latent demand

JEL Classification: G11, G12, G13, G17

Suggested Citation

Dim, Chukwuma and Sangiorgi, Francesco and Vilkov, Grigory, Media Narratives and Price Informativeness (January 12, 2023). Available at SSRN: https://ssrn.com/abstract=4323093 or http://dx.doi.org/10.2139/ssrn.4323093

Chukwuma Dim

George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

Francesco Sangiorgi

Frankfurt School of Finance & Management ( email )

Adickesallee 34
Frankfurt am Main, 60322
Germany

Grigory Vilkov (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

HOME PAGE: http://www.vilkov.net

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