There is no Such Thing as Good Publicity: An Empirical Study of the Link Between Media Coverage and Stock Returns

Jesper From Rolfsen & Kenneth Aakernes

Student thesis: Master thesis


The purpose of this thesis is to investigate whether there exists a return differential among stocks with low and high news and Twitter publication on S&P 500 and OSEAX. Based on the findings, this paper aims to build a simple investment strategy with the objective of challenging the return provided by the market. The media effect among stocks is analyzed using statistical tests for cross-sectional data and time series regression. The investment strategy tests for different holding periods. We find that stocks with little exposure to news and Twitter publications earn considerably higher returns than those with a high level. The effect is prominent among American value stocks and Norwegian growth stocks as well as small stocks. After a month of weak stock performance in OSEAX, the highly covered stocks continue the negative path, while stocks with low coverage tend to reverse the next month. The return difference holds even after controlling for risk factors, however with little statistical evidence. A zero-investment portfolio of Norwegian stocks sorted by media coverage adjusted for firm size earns a substantially greater return than its benchmark index, holding positions for one month at a time. Over our sample period, the monthly-rebalanced zero-investment portfolio outperforms the OSEAX by 4,424 basis points, even after adjusting for transaction costs. Our results imply that it should be possible for both institutional and retail investors to allocate stocks in their portfolio based on media exposure, to obtain risk-adjusted returns. Moreover, asset managers should be aware of stocks with abnormal amounts of media coverage.

EducationsMSc in Finance and Investments, (Graduate Programme) Final ThesisMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2018
Number of pages153