Media connection and return comovement

• Main Authors: CHEN, Zilin, GUO, Li, TU, Jun, Jun TU
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: Complex economic linkages; Fundamental comovement; Journalists collective opinions; News linkages; Return comovement; Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6865; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7864/viewcontent/1_s20_S0165188921001263_main.pdf
• Institution: Singapore Management University

Media news may cover multiple firms in one article, which establishes a media connection across firms. We propose a media connection strength (MCS) measure between two given firms, which is defined as the number of news articles co-mentioning these two firms. We show that the MCS measure can significantly explain and forecast return comovement of media-connected firm-pairs. Further analyses show that our results are robust to various alternative explanations. We argue that the MCS measure can capture comprehensive and complex correlated fundamental information among media-connected firms and hence may provide a new mechanism for return comovement beyond the existing rational- and behavioral-based explanations.