Rumor Has It: Sensationalism in Financial Media

The media has an incentive to publish sensational news. We study how this incentive affects the accuracy of media coverage in the context of merger rumors. Using a novel dataset, we find that accuracy is predicted by a journalist's experience, specialized education, and industry expertise. Conv...

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Bibliographic Details
Published in:The Review of financial studies 2015-07, Vol.28 (7), p.2050-2093
Main Authors: Ahern, Kenneth R., Sosyura, Denis
Format: Article
Language:English
Subjects:
Accuracy
Acquisitions
Acquisitions & mergers
Asset pricing
Education
Financial analysis
Incentives
Journalism
Market prices
Media coverage
Studies
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Summary:The media has an incentive to publish sensational news. We study how this incentive affects the accuracy of media coverage in the context of merger rumors. Using a novel dataset, we find that accuracy is predicted by a journalist's experience, specialized education, and industry expertise. Conversely, less accurate stories use ambiguous language and feature well-known firms with broad readership appeal. Investors do not fully account for the predictive power of these characteristics, leading to an initial target price overreaction and a subsequent reversal, consistent with limited attention. Overall, we provide novel evidence on the determinants of media accuracy and its effect on asset prices.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhv006