Media abnormal tone, earnings announcements, and the stock market

TL;DR

This paper investigates how media tone around earnings announcements influences stock prices, showing media articles offer additional information beyond earnings reports that aids in price discovery for S&P 500 firms.

Contribution

It introduces a tone-based event study methodology to analyze media's incremental informational role in stock price movements around earnings announcements.

Findings

Media tone correlates with abnormal stock returns.

Media articles provide incremental information beyond earnings reports.

Media tone dynamics can predict stock price movements.

Abstract

We conduct a tone-based event study to examine 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 nonfinancial S&P 500 firms. The relation we find between the abnormal tone and abnormal returns suggests that media articles provide incremental information relative to the information contained in earnings press releases and earnings calls.