Giving Content to Investor Sentiment: The Role of Media in the Stock Market



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    • Tetlock is at the McCombs School of Business, University of Texas at Austin. I am indebted to Robert Stambaugh (the editor), an anonymous associate editor, and an anonymous referee for their suggestions. I am grateful to Aydogan Alti, John Campbell, Lorenzo Garlappi, Xavier Gabaix, Matthew Gentzkow, John Griffin, Seema Jayachandran, David Laibson, Terry Murray, Alvin Roth, Laura Starks, Jeremy Stein, Philip Tetlock, Sheridan Titman, and Roberto Wessels for their comments. I thank Philip Stone for providing the General Inquirer software and Nathan Tefft for his technical expertise. I appreciate Robert O'Brien's help in providing information about the Wall Street Journal. I also acknowledge the National Science Foundation, Harvard University and the University of Texas at Austin for their financial support. All mistakes in this article are my own.


I quantitatively measure the interactions between the media and the stock market using daily content from a popular Wall Street Journal column. I find that high media pessimism predicts downward pressure on market prices followed by a reversion to fundamentals, and unusually high or low pessimism predicts high market trading volume. These and similar results are consistent with theoretical models of noise and liquidity traders, and are inconsistent with theories of media content as a proxy for new information about fundamental asset values, as a proxy for market volatility, or as a sideshow with no relationship to asset markets.