Abstract
We investigate the news coverage effect in explaining and predicting the portfolio returns. We find that stocks with more news coverage yield higher abnormal returns. The news coverage effect is still robust even after controlling for firm characteristics and industry sectors. Furthermore, the return premium on news coverage is particularly large in small-cap stocks due to the information dissemination role of news coverage. Then we construct a news coverage factor to explain the abnormal returns. We also confirm the predictability of news coverage. This indicates news coverage has a daily momentum effect. Finally, we propose three investment strategies and verify their profitabilities.
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