Media reporting and asset pricing models

Recent literature shows that investors’ revealed beliefs often point to the use of comparatively simple valuation approaches or heuristics rather than complex models with several dimensions of systematic risk to price assets. Against this background, we comprehensively analyze how different stock-level performance measures affect media tone in firm-specific articles in several major markets. While the realized risk-adjusted abnormal returns of all tested models are positively related to media sentiment, the CAPM-adjusted return as well as the raw stock return have the strongest impact in direct comparisons. Overall, the results are most consistent with the conjecture that, on average, reporting tends to be influenced more by straightforward valuation approaches than by risk adjustments derived from multi-factor asset pricing models. Further largely supportive evidence comes from return decompositions, subsample tests, reporting about mutual funds as well as from survey results.