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What the Market Watched: Bloomberg News Stories and Bank Returns as the Financial Crisis Unfolded

By Robin L. Lumsdaine

Abstract

This paper explores a unique dataset gathered via Bloomberg during the early stages of the recent financial crisis. Unlike previous literature that has often used information on headlines as a metric for news, the dataset here contains information on readership and therefore provides a glimpse into the extent to which financial market participants were focused on the news of a particular firm as the financial crisis unfolded. By examining the news that captured the attention of these participants and exploring its relationship to bank returns, this paper addresses the role that market news and reputation may have had in shaping perception during the crisis. There is strong evidence that firms whose news elicited higher readership suffered significantly lower returns than those that did not, both contemporaneously and subsequently. Those banks that on average had relatively high readership interest, or that ranked highly in readership interest a large proportion of the days in the sample, on average had returns that were about 20 percentage points lower than banks that remained relatively out of the spotlight. In addition, greater news readership is associated with higher volatility of returns. A model portfolio that each day is short the ten banks ’ stocks that were in the top readership rankings the previous day and long the other stocks generates a cumulative P&L of 1.45 % in the run-up to the crisis; during the same time period the S&P 50

Year: 2009
OAI identifier: oai:CiteSeerX.psu:10.1.1.183.8341
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