Review of Financial Studies · 2014 · 230 citations · 72 references
Social SciencesEconomicsFinanceFinancial EconomicsMass CommunicationMedia StudiesCapital MarketsInvestor SentimentMass MediaMedia EconomicsMedia EffectsNews MediaCorporate Media InfluenceEarnings MomentumEquity Return PredictabilityInvestor OverconfidenceMomentum TheoryOverreaction Effect
Relying on 2.2 million articles from forty-five 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 is 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.
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Common risk factors in the returns on stocks and bonds
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