How Important Is the Financial Media in Global Markets?

Abstract

This article studies differences in the information content of 870,000 news announcements in 56 markets around the world. In most developed markets, a firm's stock price moves much more on days with public news about the firm. In contrast, in many emerging markets volatility is similar on news and non-news days. We examine several hypotheses for our findings. Crosscountry differences in stock price reactions are best explained by insider trading, followed by differences in the quality of the news dissemination mechanism. Our findings are useful for quantifying the extent of insider trading and how the financial media affects international markets. (JEL G14, G15) Public news announcements are a major mechanism for disseminating information to investors. Each day the financial media releases thousands of articles covering companies in markets worldwide. Investors use this news to estimate assets' fundamental values. Despite the perceived importance of the The first two authors are from the McCombs School of Business at the University of Texas at Austin.

News Media and Investor Sentiment over the Long Run

“…This paper is part of a growing literature which examines the role of the press in financial markets. This literature can be categorized into distinct areas, namely the role of the press as a financial watchdog (Dyck et al, 2008;Taylor, 2012); the role of the press as information providers to investors (Fang and Peress, 2009;Engelberg and Parsons, 2011;Griffin et al, 2011;Turner et al, 2017); the role of bias and incentives in the financial press and financial reporting (Dyck and Zingales, 2003;Bignon and Miscio, 2010); the role of the media in financial bubbles or speculation (Shiller, 2000;Huberman and Regev, 2001;Bhattacharya et al, 2009;Campbell et al, 2012); and the use of media content as a way of quantifying animal spirits or sentiment in the stock and housing markets (Tetlock, 2007;Dougal et al, 2012;García, 2013;Soo, 2013;Walker, 2014;Kräussl and Mirgorodskaya, 2017). The part of the literature which this paper is most closely related to is the sentiment work of Tetlock (2007) and García (2013).…”

Media Content and Stock Returns: The Predictive Power of Press

“…Another branch of studies shows that the amount of news media coverage reduces firms' expected returns (Fang and Peress, 2009;Peress, 2014) and stimulates local trading (Engleberg and Parsons, 2011). 1 Dougal et al (2012) find that financial journalists have the potential to influence investor behaviour and Griffin, Hirschey, and Kelly (2011) shows that reaction to news media varies around the world according to levels of development, information quality, and information transmission mechanisms. Nearly all the studies of media interactions with financial markets predominately examine news media content in the US market.…”

Financial Press and Stock Markets in Times of Crisis

“…Therefore, we looked at general picture information, which reflects more interpretation than objective detail. Finally, by comparing three newspapers and their respective stock markets, we also wanted to measure differences in interpretation of this global crisis in the financial press (e.g., Griffin et al (2011)). …”