Joint news, attention spillover, and market returns predictability

• Main Authors: GUO, Li, PENG, Lin, TAO, Yubo, Jun TU
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: Attention spillover; News; Investor base; EDGAR search; Return predictability; Self news; Business and Corporate Communications; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6888; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7887/viewcontent/SSRN_id2927561.pdf
• Institution: Singapore Management University

We analyze over 2.6 million news articles and propose a novel measure of joint news coverage of firms. The measure strongly and negatively predicts market returns, with a monthly R-squared of 3.93% in sample and 6.52% out of sample. The relation is causal, robust to existing predictors, and is especially strong when market uncertainty is high or when market frictions are large. At the firm level, joint news coverage is associated with a 20.3% increase in EDGAR downloads by new IPs from the investor bases of the other covered firms. Our evidence suggests that joint news triggers investor attention spillover across firms, which aggregates and causes marketwide overvaluations and subsequent reversals.