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The role of media in the credit crunch: The case of the banking sector

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  • Wisniewski, Tomasz Piotr
  • Lambe, Brendan

Abstract

Using a Vector Autoregression framework, this paper investigates the dynamic relationship between the intensity of negative media speculation and the market performance of financial institutions. Evidence is provided that over the sub-prime crisis period pessimistic coverage Granger-caused the returns on banking indices, while causality in the opposite direction proved weaker. These findings may imply that journalists not only report on the state of economic reality, but also play an active role in creating it. Investors acting upon sentiment implicit in media reports would have been able to improve their investment performance, as measured by Sharpe ratios and Jensen's alphas.

Suggested Citation

  • Wisniewski, Tomasz Piotr & Lambe, Brendan, 2013. "The role of media in the credit crunch: The case of the banking sector," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 163-175.
  • Handle: RePEc:eee:jeborg:v:85:y:2013:i:c:p:163-175
    DOI: 10.1016/j.jebo.2011.10.012
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Wisniewski, Tomasz Piotr & Yekini, Liafisu Sina, 2014. "Predicting Stock Market Returns Based on the Content of Annual Report Narrative: A New Anomaly," MPRA Paper 58107, University Library of Munich, Germany.
    2. Rens Vliegenthart, 2014. "Moving up. Applying aggregate level time series analysis in the study of media coverage," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(5), pages 2427-2445, September.
    3. Gordon L Clark, 2012. "Pensions or property?," Environment and Planning A, Pion Ltd, London, vol. 44(5), pages 1185-1199, May.
    4. Irresberger, Felix & Mühlnickel, Janina & Weiß, Gregor N.F., 2015. "Explaining bank stock performance with crisis sentiment," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 311-329.
    5. repec:bla:jrinsu:v:84:y:2017:i:4:p:1295-1330 is not listed on IDEAS
    6. Ahmad, Khurshid & Han, JingGuang & Hutson, Elaine & Kearney, Colm & Liu, Sha, 2016. "Media-expressed negative tone and firm-level stock returns," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 152-172.
    7. Matthew Gentzkow & Bryan T. Kelly & Matt Taddy, 2017. "Text as Data," NBER Working Papers 23276, National Bureau of Economic Research, Inc.
    8. Wisniewski, Tomasz Piotr & Lambe, Brendan John, 2015. "Does economic policy uncertainty drive CDS spreads?," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 447-458.

    More about this item

    Keywords

    Media; Stock market; Financial crisis; Self-fulfilling prophecies;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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