Media Makes Momentum

Abstract

Relying on 2.2 million articles from 45 national and local U.S. newspapers between 1989 and 2010, we find that firms particularly covered by the media exhibit ceteris paribus significantly stronger momentum. The effect depends on article tone, reverses in the long-run, is more pronounced for stocks with high uncertainty, and stronger in states with high investor individualism. Our findings suggest that media coverage can exacerbate investor biases, leading return predictability to be strongest for firms in the spotlight of public attention. These results collectively lend credibility to an overreaction-based explanation for the momentum effect.

Do Experts in Financial Magazines Exhibit the Representativeness Heuristic? Evidence from Taiwan

“…They argue that to simplify the portfolio allocation process, many investors first group stocks into categories, such as small-cap stocks or automotive industry stocks, and then allocate funds across these various categories. Hillert, Jacobs, & Müller (2014) find that firms reported on the media exhibit, ceteris paribus, substantially stronger momentum. Media coverage can exacerbate investor biases, leading return predictability to be strongest for firms in the public eye.…”

News media analytics in finance: a survey

“…A prominent subset of the low‐frequency literature explores the implications of cross‐sectional differences in firms’ news content through portfolio analyses (see Section ). A major theme among these studies is the interaction between news exposure and stock price momentum (Hillert et al ., ). The investigations of Chan () and Fang and Peress (), which made use of news incidence and news coverage, but not news content, have been particularly influential in this corner of the literature.…”

“…For example, researchers have studied the influence of news at the firm level (Tetlock et al ., ; Ferguson et al ., ), industry level (Li et al ., ; Smales, ), market level (Tetlock, ; Wei et al ., ), commodity level (Clements and Todorova, ; Maslyuk‐Escobedo et al ., ), between currencies (Nassirtoussi et al ., ), across countries (Griffin et al ., ) and at the global market level (Uhl et al ., ). Time horizons vary from intraday (Groß‐Klußmann and Hautsch, ; Ho et al ., ), daily (Tetlock, ; Garcia, ), weekly (Lu and Wei, ; Sinha, ), monthly (Ammann et al ., ; Cahan et al ., ) and over several years (Hillert et al ., ; Kraussl and Mirgorodskaya, ).…”

“…Some studies also orthogonalise news scores to firm characteristics using a regression model to attenuate the extent to which the news scores are proxies for firm size, sector, index membership or other potential determinants of news exposure (Hillert et al ., ; Huynh and Smith, ).…”

“…Of the reviewed studies, calendar‐time portfolio analysis is used by Chan (), Fang and Peress (), Hillert et al . (), Sinha (), Huynh and Smith (), Song et al . () and Wei et al .…”