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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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    2. Felix Irresberger & Fee Elisabeth König & Gregor N. F. Weiß, 2017. "Crisis Sentiment in the U.S. Insurance Sector," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(4), pages 1295-1330, December.
    3. Biktimirov, Ernest N. & Sokolyk, Tatyana & Ayanso, Anteneh, 2021. "Sentiment and hype of business media topics and stock market returns during the COVID-19 pandemic," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    4. 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.
    5. 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.
    6. Stelios Michalopoulos & Melanie Meng Xue, 2021. "Folklore," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(4), pages 1993-2046.
    7. 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.
    8. Gupta, Kartick & Banerjee, Rajabrata, 2019. "Does OPEC news sentiment influence stock returns of energy firms in the United States?," Energy Economics, Elsevier, vol. 77(C), pages 34-45.
    9. 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.
    10. Małgorzata Iwanicz-Drozdowska & Łukasz Kurowski & Bartosz Witkowski, 2023. "Resolution and depositors’ trust empirical analysis of three resolution cases in Poland," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 16(2), pages 239-265, May.
    11. Muhammad Akram & Abdul Rashid, 2018. "Financial turmoil, external finance and UK exports," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(4), pages 651-681, October.
    12. Alexander Benov & Maria Semenova, 2021. "Bank Runs And Media Freedom: What You Don’t Know Won’t Hurt You?," HSE Working papers WP BRP 81/FE/2021, National Research University Higher School of Economics.
    13. Salman Sigari & Amir. H. Gandomi, 2022. "Analyzing the past, improving the future: a multiscale opinion tracking model for optimizing business performance," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-10, December.
    14. Matthew Gentzkow & Bryan T. Kelly & Matt Taddy, 2017. "Text as Data," NBER Working Papers 23276, National Bureau of Economic Research, Inc.
    15. Jacobs, Heiko, 2020. "Hype or help? Journalists’ perceptions of mispriced stocks," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 550-565.

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    More about this item

    Keywords

    Media; Stock market; Financial crisis; Self-fulfilling prophecies;
    All these keywords.

    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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