Media Network and Excess Return Comovement

Abstract

Media news may cover multiple firms in one article, which establishes a media connection across firms. We propose a media connection strength (MCS) measure, which is defined as the number of news articles co-mentioning two firms. We find that the MCS measure can capture soft information about the correlated fundamentals between two media-connected firms. Furthermore, we show that the MCS measure can significantly explain and forecast return comovement for media-connected firm pairs. The MCS measure may be considered as a new soft information based explanation for return comovement, beyond the existing hard information based and behavioral based explanations.