Media Abnormal Tone, Earnings Announcements, and the Stock Market


We propose a tone-based event study to reveal the aggregate abnormal tone dynamics in media articles around earnings announcements. We test whether they convey incremental information that is useful for price discovery for non financial S&P 500 firms. The positive relationship found between the abnormal tone measure and abnormal returns suggests that media provide incremental information relative to the hard and soft information contained in earnings press releases. We also find that there is an overreaction to media abnormal tone, since the price increase associated with the abnormal tone in newspapers and web publications partially reverts in the twenty days following the announcement.

Working paper