Media-expressed negative tone and firm-level stock returns

We build a corpus of over 51/2 million news articles on 20 large US firms over the 10-year period from January 2001 to December 2010, and use it to study the time-varying nature of the relation between media-expressed firm-specific tone and firm-level returns. By estimating a series of separate rolling window vector autoregressive (VAR) models for each firm, we show how media-expressed negative tone impacts firm-level returns episodically in ways that vary across firms and over time. We find that firms experience prolonged periods during which media-expressed tone has no effect on returns, and occasional episodes when it has a significant impact. During the significant episodes, its impacts are sometimes quickly reversed and at other times they endure - implying that media comment and analysis can sometimes be sentiment (or noise), but it can also contain value-relevant information or news. Our findings are in general consistent with efficiently functioning markets in which the media assists with the processing of complex information. (C) 2016 Elsevier B.V. All rights reserved.