- | Thursday, June 1
- 12:15 PM
- Kaiserplatz 7-9, 4th floor, Room 4.006
News Media and Stock Market Returns over the Long Run
Does the news media affect financial markets? In this paper, we examine the relationship between the content of the Financial Times (FT) and daily returns on the London Stock Exchange for the period 1899– 2010. To do this, we convert 350,000 articles into text files using OCR software and then assess the positive and negative sentiment of each article using the Loughran and McDonald (2011) dictionary. We also test whether the prevailing state of the market affects the nature of media influence. Our headline result is that news’ content predicts stock returns in the short run, but that this effect is quickly reversed. This finding is consistent with a behavioural mechanism, whereby news that is read by traders creates a short-term bias in their actions. We also find that the effect of news on returns is similar in both bull and bear markets, suggesting that the sensitivity of investors to news is not affected by depressed or buoyant economic conditions.