The Role of Business Press in Security Pricing: Initial Evidence from the Korean Stock Market

초록

Prior studies document that media plays a significant role in the financial market by discovering and disseminating company information. However, whether and to what extent the media improves price efficiency remain unaddressed in Korea. Analyzing an unprecedented dataset of Korean business press articles from 2000 to 2017, we report that business press coverage is positively related to idiosyncratic volatility of stock returns, seemingly indicating the incorporation of firm-specific information into stock prices. We then ask whether or not the business articles convey relevant information consistent with firm fundamentals. Based on fundamental value-to-price ratios as a proxy for stock mispricing, we find robust evidence that 1) media coverage is in fact significantly associated with stock mispricing, 2) the mispricing in media-covered stocks is salient only for undervalued firms, and 3) the business articles covering undervalued stocks tend to use negative tones. These findings collectively suggest that the pessimistic tone of the Korean business press is associated with stock undervaluation. Our findings are consistent with prior literature that documents a sentiment effect of media coverage (e.g., Tetlock 2007). The initial evidence reported in this study not only provides practical insights for managers, market participants, and regulators, but also opens a new research avenue for future research.

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