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Feb 19, 2018

Subject matters: What your media associations tell investors

Research uncovers link between media coverage, stock price and investor buying behavior

The topics a company is associated with in the news hold more information for investors than simply media attention, sentiment or tone, according to research from the University of Amsterdam.

Empirical research into the impact of media coverage on a firm’s market performance has focused largely on how quantity affects investor attention and decisions – but recent academic inquiries have shifted the emphasis toward more qualitative factors such as sentiment and the particular topics looked at by the media. 

‘Finding out the relative relevance of information for stock market prices is important for IR professionals,’ says Joanna Strycharz, a PhD candidate at the University of Amsterdam. ‘Yet the specific topics a listed company is associated with in the news media have not been researched so far.’ Strycharz believes ‘topics or issues might convey more information for investors than simply media attention, sentiment or tone.’ 

To get a better handle on how specific corporate information relates to market movements, Strycharz and colleagues Nadine Strauss and Damian Trilling used automated content analysis techniques to examine media coverage related to ING, Philips and Shell over the course of two years. 

For two of the investigated companies – Shell and Philips – the investigators find emotionality of coverage leads to greater stock price fluctuation. They further observe that media reporting on market relevant news such as M&A or restructurings drives stock prices.

But they also find that in certain circumstances, media coverage of non-financial news can affect investor buying behavior. ‘Philips, the only consumer-oriented company in our sample, is also the only firm for which coverage related to issues like products or CSR matters for stock price,’ says Strycharz. 

‘This suggests that for such a company, media coverage about non-financial issues might not only impact how consumers think about the company – thereby maybe affecting their buying behavior – but might also drive investors to reallocate their investment accordingly in anticipation of the media coverage. Particularly for IROs at consumer companies, then, both sorts of communication might be relevant when seeking a fair evaluation of the firm’s share price.’ 

Curiously, the researchers find no comparable effects for either emotionality or topics for ING. ‘We suspect this may be due to extensive negative media coverage of the banking sector,’ speculates Strycharz. ‘This might have made investors immune to the sentiment of coverage or the topics the media report on.’ 

She adds that any company can reproduce her automated content analysis and programming technique to reveal the relationship between media coverage and the firm’s own stock price.