Asset returns, news topics, and media effects*

Abstract

We decompose the textual data in a daily Norwegian business newspaper into news topics, and we investigate their predictive and causal role for asset prices. Our findings suggest that news published through the mass media has significant, persistent, and potentially economically profitable predictive power for returns. Moreover, during an exogenous media strike, returns for firms particularly exposed to our news measure experience a substantial fall relative to the control group. Together, these findings lend support for a view where the mass media acts as an “information intermediary” between agents and the state of the world, and disseminates fundamental information to investors.