How does the Media coverBusiness and Economics? A IN-DEPTH ANALYSIS BY RAMY SIMPSON
Lesson Module One THE MEDIA’S EFFECT ON THE STOCKMARKET AND HOW THE MEDIA COVERS THE STOCK MARKET
Learning Objectives The correlation between media stories and stock market reactions. How media outlets choose which business stories to cover. What makes local media important? The importance, relevance and geographic proximity of news in relation to local media.
The correlation between media stories and stock market reactions With or without media attention, when firm fundamentals change, investors respond. The media just makes knowledgeable facts known to a broader audience.
Example of Earnings Per ShareMedia’sInfluence Third QuarterIn 2007 Detroit Newsran an article about howlocal firm DTE Energyhad third quarter gainsthat surpassed theirprevious years revenueand were now worth Fourth Quarter Earnings Per$1.16 per share. In thefourth quarter DTE had Sharemore gains and wereworth $1.56 per share,Detroit News did notreport these gains. As itturned out, overall Previous Yeartrading was 21% higherthe first three days afterthe third quarter then thefourth quarter, eventhough the fourth quarter 0 1 2gains were higher.
The correlation between media stories and stock market reactions - Another Example of Media’s Influence: Studies have shown if local media reports a company’s earnings on a specific day, local trading increases on that specific day. If a local media outlet in Phoenix reports on a companies earnings or losses on a Wednesday, an increased amount of trading in Phoenix will occur on that Wednesday. If Seattle reports the same news a day later on Thursday, an increased amount of trading in Seattle will occur on that Thursday.
The correlation between media stories and stock market reactions A reason why news might get to a city a day later is poor weather. In today’s internet era, news will find ways to arrive in every city at the same time. However in the pre-internet era, specifically the 90’s, news came from local papers, and if weather prevented newspapers from getting door to door, news would be delayed for many people.
How media outlets choosewhich business stories to cover FACTORS: LOCAL MEDIA IMPORTANCE RELEVANCE GEOGRAPHIC PROXIMITY
How media outlets choose which business stories to cover Obviously if a report on a business deserves National attention, it will be a top priority for all media outlets. It is both important and relevant to people across the nation. Media outlets will cover these stories, such as scandals, the same way. They will explain what happened and provide their own biases. However what really differentiates media outlets across the country is how they cover business news that isn’t worth National attention. How do they decide what business news to report on?
How media outlets choose which business stories to cover What seems to be apparent from studies is that the media in a town is more likely to report business news relevant to that town. Geographic proximity is important when it comes to news. For example, the Atlanta Journal Constitution is more likely to report updates from a business in Atlanta than the Pittsburg Post Gazette is.
How media outlets choose which business stories to cover This has an effect on local trading on the Stock Market. Local media coverage increases local trading by an estimated 75% in the typical market.
Quiz What kind of effect do you think the Media has on daily trading? No effect Minimal effect Decent effect Huge effect