For those unlucky souls who lack the brass or seniority to take Wednesday off – for whom the day before Thanksgiving means feigning work while dicking around on the internet until it's late enough to peace without drawing notice – gratitude probably isn't high on the list of dominant emotions right now. Which is understandable. But if you're looking for something to get you in the holiday spirit of obligatory thankfulness, consider your humble financial reporter.
In a recently published paper, MIT Sloan PhD student Nicholas Guest examined the impact of business journalists on trading patterns. Using a few “natural experiments” at the Wall Street Journal – including an increase in breaking news coverage in 2008 and the Dow Jones-WSJ newsroom merger in 2013 – Guest found that stocks with robust earnings analysis in the Journal traded more heavily and efficiently than they would have otherwise. “WSJ articles increase trading volume by decreasing the costs of processing firms’ earnings news,” Guest writes.
Companies whose earnings were covered by the WSJ enjoyed a 5 percent bump in abnormal trading volume, says the paper. And it's not just a rush of dumb retail money. Assessing a metric called the earnings response coefficient, which measures the magnitude of a stock's change from novel information in financial reports, Guest finds that WSJ coverage boosted the market's responsiveness to earnings news by 20 percent:
Journalists of course can be staggeringly lazy, repackaging press releases with a few newsy cliches and calling it a day. How do we know there's any value-add here, that WSJ isn't just a glorified newswire? It turns out that scribblers who go to the trouble of providing unique insights move stocks more. To find this, the author used a textual analysis algorithm to compare news clips with company press releases, analyzing how many words and phrases they had in common. The result:
The effect of WSJ articles on abnormal volume is concentrated in the articles that likely contain more original analysis and absent among articles that disseminate more information from the firm’s press release.
In particular, articles rated in the highest quintile of analytical insight led to an earnings response coefficients around 40 percent higher than articles that just regurgitated press materials. The hotter the take.
The findings don’t mean every financial news outlet is a paragon of value-adding enlightenment. For instance, you’re reading Dealbreaker right now. Still, even we’ve been rightabout a fewthings. Maybe someday some MIT can tell us how much more – or less – efficient and rational we’ve made the markets. Probably less.
Anyway, be sure to thank the finance journo in your life today. You ungrateful jerks.