Can media attention move financial markets?

Highlights of the 2016 Northern Finance Association Conference

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TV Screen NewsWe know that media attention to individual companies can affect share prices for better or for worse – but what about financial markets as a whole? A team of academics from the Sauder School of Business, University of British Columbia, find that the level of media attention paid to macroeconomic risks like employment, growth, inflation, monetary policy, and oil prices can be a predictor of market dynamics. The paper, called “Media Attention to Macroeconomic Fundamentals: What Drives Attention and What Does it Mean for the Aggregate Stock Market?” will be presented at the Northern Finance Association Conference being held in Mont Tremblant, Quebec, from September 16-18 2016.

Authors Adlai J. Fisher, Charles Martineau, and Jinfei Sheng construct indices of media attention to macroeconomic risks including employment, growth, inflation, monetary policy, and oil prices. Not surprisingly bad news attracts more media attention than good news however the authors also show that aggregate trade volume and volatility coincide with rising attention. Furthermore, they find that increased media attention can predict market surprises as well as stock returns on unemployment announcement days.

As the authors conclude: “attention dynamics reveal changing investor concerns for different macroeconomic risks over time, and that these attention dynamics are important to understanding financial markets.”

You can download and read the full paper here.

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