Sentiment and Media Attention

Last week, I introduced the concept of abnormal news liquidity, to detect companies that move in or out of the media spotlight. In my latest study, I found that such distinction added value as part of a stock selection framework - capturing the different patterns in price reaction to sentiment across the two groups of stocks.

Specifically, I find that when companies moving out of the media spotlight are portrayed positively in the news, they tend to outperform the market over the following year. Likewise, companies that are portrayed negatively tend to significantly underperform the market. For companies getting abnormal media attention, the market tends to either over- or underreact to positive and negative news sentiment depending on market conditions.

Figure 6 from the study depicts the cumulative return spreads between the Top and Bottom ranking stocks according to their news sentiment; assuming the companies have recently moved out of the media spotlight.



Based on these results, it seems that companies that have recently moved out of the media spotlight still get attention from investors.

Figure 11 from the study depicts the cumulative return spreads between the Top and Bottom ranking stocks according to news sentiment; assuming companies have recently moved into the media spotlight.



As part of a stock selection framework, it seems attractive to condition on whether companies have recently moved in or out of the media spotlight, especially when trying to understand the longer-term market reaction patterns to sentiment.