Media Connection and Return Comovement

Posted: 4 Jul 2019 Last revised: 3 Aug 2021

See all articles by Zilin Chen

Zilin Chen

Southwestern University of Finance and Economics (SWUFE) - School of Finance

Li Guo

Fudan University - School of Economics; Shanghai Institute of International Finance and Economics

Jun Tu

Singapore Management University - Lee Kong Chian School of Business

Date Written: August 30, 2020

Abstract

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.

Keywords: Media Connection; Comovement; Soft Information.

JEL Classification: G11, G12, G41

Suggested Citation

Chen, Zilin and Guo, Li and Tu, Jun, Media Connection and Return Comovement (August 30, 2020). Available at SSRN: https://ssrn.com/abstract=3414110 or http://dx.doi.org/10.2139/ssrn.3414110

Zilin Chen

Southwestern University of Finance and Economics (SWUFE) - School of Finance ( email )

Chengdu, 610074
China

Li Guo

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Shanghai Institute of International Finance and Economics ( email )

777 Guoding Rd
Wu Jiao Chang, Yangpu District
Shanghai, Shanghai 200017
China

Jun Tu (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
#04-01
Singapore, 178899
Singapore

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