Giving Content to Investor Sentiment: The Role of Media in the Stock Market

PAUL C. TETLOCK,

PAUL C. TETLOCK

Tetlock is at the McCombs School of Business, University of Texas at Austin. I am indebted to Robert Stambaugh (the editor), an anonymous associate editor, and an anonymous referee for their suggestions. I am grateful to Aydogan Alti, John Campbell, Lorenzo Garlappi, Xavier Gabaix, Matthew Gentzkow, John Griffin, Seema Jayachandran, David Laibson, Terry Murray, Alvin Roth, Laura Starks, Jeremy Stein, Philip Tetlock, Sheridan Titman, and Roberto Wessels for their comments. I thank Philip Stone for providing the General Inquirer software and Nathan Tefft for his technical expertise. I appreciate Robert O'Brien's help in providing information about the Wall Street Journal. I also acknowledge the National Science Foundation, Harvard University and the University of Texas at Austin for their financial support. All mistakes in this article are my own.Search for more papers by this author

PAUL C. TETLOCK,

PAUL C. TETLOCK

First published: 08 May 2007

https://doi.org/10.1111/j.1540-6261.2007.01232.x

Citations: 2,769

Read the full text

About

PDF

Tools

Share a link

Email
Facebook
Twitter
LinkedIn
Reddit
Wechat

ABSTRACT

I quantitatively measure the interactions between the media and the stock market using daily content from a popular Wall Street Journal column. I find that high media pessimism predicts downward pressure on market prices followed by a reversion to fundamentals, and unusually high or low pessimism predicts high market trading volume. These and similar results are consistent with theoretical models of noise and liquidity traders, and are inconsistent with theories of media content as a proxy for new information about fundamental asset values, as a proxy for market volatility, or as a sideshow with no relationship to asset markets.

REFERENCES

Antweiler, Werner, and Murray Z. Frank, 2004, Is all that talk just noise? The information content of Internet stock message boards, Journal of Finance 59, 1259–1293.
10.1111/j.1540-6261.2004.00662.x
Web of Science®Google Scholar
Baker, Malcolm, and Jeffrey Wurgler, 2006, Investor sentiment and the cross-section of stock returns, Journal of Finance 61, 1645–1680.

Google Scholar
Campbell, John Y., Sanford J. Grossman, and Jiang Wang, 1993, Trading volume and serial correlation in stock returns, Quarterly Journal of Economics 108, 905–939.
10.2307/2118454
Web of Science®Google Scholar
Campbell, John Y., Andrew W. Lo, and A. Craig MacKinlay, 1995, The Econometrics of Financial Markets (Princeton University Press, Princeton, NJ).

Google Scholar
Cleveland, William S., 1979, Robust locally weighted regression and smoothing scatterplots, Journal of the American Statistical Association 74, 829–836.
10.1080/01621459.1979.10481038
Web of Science®Google Scholar
Coval, Joshua D., and Tyler Shumway, 2001, Is sound just noise? Journal of Finance 56, 1887–1910.
10.1111/0022-1082.00393
Web of Science®Google Scholar
Cutler, David M., James M. Poterba, and Lawrence H. Summers, 1989, What moves stock prices? Journal of Portfolio Management 15, 4–12.
10.3905/jpm.1989.409212
Web of Science®Google Scholar
DeLong, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann, 1990a, Noise trader risk in financial markets, Journal of Political Economy 98, 703–738.
10.1086/261703
Web of Science®Google Scholar
DeLong, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann, 1990b, Positive feedback investment strategies and destabilizing rational speculation, Journal of Finance 45, 374–397.

Google Scholar
Dow Jones Newswires. January 2, 1984 to September 17, 1999, Abreast of the market (Dow Jones Newswires, Jersey City, NJ).

Google Scholar
Fama, Eugene F., and Kenneth R. French, 1993, Common risk factors in the returns on stocks and bonds, Journal of Financial Economics 33, 3–56.
10.1016/0304-405X(93)90023-5
Web of Science®Google Scholar
Ghysels, Eric, Pedro Santa-Clara, and Rossen I. Valkanov, 2004, There is a risk-return trade-off after all, EFA 2004 Maastricht Meetings Paper No. 1345.

Google Scholar
Granger, Clive W.J., 1969, Investigating causal relations by econometric models and cross-spectral methods, Econometrica 37, 424–438.
10.2307/1912791
Web of Science®Google Scholar
Keynes, John M., 1936, The General Theory of Employment, Interest, and Money (MacMillan, London).

Google Scholar
Newey, Whitney, and Kenneth West, 1987, A simple, positive definite, heteroscedastic and auto-correlation consistent covariance matrix, Econometrica 55, 703–708.
10.2307/1913610
Web of Science®Google Scholar
Riffe, Daniel, Stephen Lacy, and Frederick G. Fico, 1998, Analyzing Media Messages: Using Quantitative Content Analysis in Research (Lawrence Erlbaum Associates, London).

Google Scholar
Samuelson, Paul A., 1965, Proof that properly anticipated prices fluctuate randomly, Industrial Management Review 6, 41–49.

Web of Science®Google Scholar
Wall Street Journal, January 2, 1984 to September 17, 1999, Abreast of the market, Section C. (Dow Jones Company, New York, NY).

Google Scholar
Whaley, Robert E., 2000, The investor fear gauge, Journal of Portfolio Management 26, 12–17.
10.3905/jpm.2000.319728
Web of Science®Google Scholar

Citing Literature

Volume62, Issue3

June 2007

Pages 1139-1168

Giving Content to Investor Sentiment: The Role of Media in the Stock Market

ABSTRACT

REFERENCES

Citing Literature

References

Information

About Wiley Online Library

Help & Support

Opportunities

Connect with Wiley

Giving Content to Investor Sentiment: The Role of Media in the Stock Market

ABSTRACT

REFERENCES

Citing Literature

References

Related

Information