Stale Economic News, Media and the Stock Market

Tuesday, December 10, 2013 ( 2:00 pm to 3:00 pm )

Location: Babbio Center 430

Gene Birz, Assistant Professor of Finance, Southern Connecticut State University

I employ a classification of headlines from 389 newspapers and wire services to examine whether stale economic news affects stock prices. Unlike with individual stocks, the cost of obtaining information about major economic releases is relatively low. Thus, stock prices should adjust to economic news announcements prior to their coverage in newspapers. I find a strong, statistically and economically significant relationship between stale news stories on unemployment and next week’s S&P 500 returns. This effect is then completely reversed during the following week. These findings support the hypothesis that investors overreact to stale economic news reported in newspapers.

Gene Birz is an Assistant Professor of Finance at Southern Connecticut State University.  His research interests include behavioral finance, market microstructure, risk management, and empirical asset pricing. His recent work examines the role of media in financial markets. His research titled “The Effect of Macroeconomic News on Stock Returns: New Evidence from Newspaper Coverage” has been published in the Journal of Banking and Finance as a lead article. He is also a recipient of the Connecticut State University Research Grant (2013). Prior to joining SCSU, he taught at the State University of New York at Binghamton, Adelphi University, and worked as a Market Risk Management Auditor at Morgan Stanley. He earned his Ph.D. from SUNY Binghamton.

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