Workshop Series: Ro Gutierrez
Economists have recently begun to explore the roles of the ?financial media in the stock market. We extend this line of inquiry by assessing the aggregate information contained in the Wall Street Journal's decisions to cover ?firms' earnings reports. Since the information in earnings announcements varies across ?firms and time, we ?first measure unexpected coverage of each firm's announcement and then aggregate unexpected coverage across ?firms each month. The resulting measure quantifies the monthly flow of market-wide information regarding stock valuation, arising from the Wall Street Journal's perception of the informativeness of the earnings reports. In months when the level of coverage is surprisingly high, returns on the CRSP value-weighted index are high and continue to be high for roughly six months. The six-month predictability in returns seems due to the persistence in the flow of market-wide news rather than aggregate media coverage capturing investor sentiment. We conclude that high aggregate unexpected coverage identifies periods of high valuation uncertainty and that high returns are compensation for bearing this time-varying risk. In addition, we find that exposure to this risk varies across stocks and is priced in the cross section of returns. Finally, serial correlation in the index return is highly dependent on our measure of aggregate news flow, switching from positive to negative serial correlation as aggregate unexpected coverage changes from high to low.
Ro Gutierrez is currently an Associate Professor of Finance at the University of Oregon. His research broadly focuses on the pricing of risky assets and the informational efficiency of the financial markets, with a particular focus on the predictability of stock returns. Dr. Gutierrez's research is published in the Journal of Business, the Journal of Finance, and the Journal of Financial Markets. He has taught courses in investments and asset pricing at the undergraduate, MBA, and Ph.D. levels. He holds a B.S. in Mathematics and Economics from Tulane University and a Ph.D. in Finance from the University of North Carolina.