Rumor Has It: Sensationalism in Financial Media
Kenneth R. Ahern
University of Southern California
University of Michigan
The media has an incentive to publish sensational news. We study how this incentiveaﬀects the accuracy of media coverage in the context of merger rumors. Using a noveldataset, we ﬁnd that accuracy is predicted by a journalist’s experience, specialized edu-cation, and industry expertise. Conversely, less accurate stories use ambiguous languageand feature well-known ﬁrms with broad readership appeal. Investors do not fully ac-count for the predictive power of these characteristics, leading to an initial target priceoverreaction and a subsequent reversal, consistent with limited attention. Overall, weprovide novel evidence on the determinants of media accuracy and its eﬀect on assetprices. (
G14, G34, L82)
We thank Zhi Da, Harry DeAngelo, David Hirshleifer, Tim Loughran, Jo¨el Peress, David Solomon,Paul Tetlock, Karin Thorburn, and seminar participants at Alberta School of Business, 2013 Eco-nomics of Strategy Workshop at NYU, 2013 Southern California Finance Conference, 2013 Univer-sity of British Columbia Summer Finance Conference, 2013 University of Miami Behavioral FinanceConference, and University of Southern California for comments. Ahern: University of Southern Cal-ifornia, Marshall School of Business, 3670 Trousdale Parkway, Los Angeles, CA 90089 (email: email@example.com); Sosyura: University of Michigan, Ross School of Business, 701 TappanStreet, Ann Arbor, MI 48109 (firstname.lastname@example.org).