A new study sheds light on how homogenous news coverage by media-owned outlets impacts financial markets, urging investors to seek varied information sources for better market interpretation.
New research indicates that homogeneous news coverage by media conglomerates can have troubling consequences for financial markets.
The study, co-authored by Flora Sun, an assistant professor of accounting at Binghamton University’s School of Management, delves into how business news outlets owned by the same media companies tend to produce nearly identical stories. This lack of unique news content hampers investors’ ability to interpret crucial information from earnings reports effectively.
“We could see how the market could be affected by such similar coverage since the speed at which the stock price incorporates new information is getting slower,” Sun said in a news release. “This is because we do not have diverse enough opinions to offset each other and try to achieve a very efficient price in the end.”
The researchers analyzed a vast dataset for the study, reviewing news articles about earnings announcements in 34 major media outlets involving 4,462 publicly traded companies between 2007 and 2019. In total, they examined 288,385 articles discussing 95,820 earnings announcements.
Using sophisticated statistical tools, Sun and her team found that media outlets under the same ownership often exhibit similar tones and language when covering the same event. This homogeneity can deceive market participants who believe they are getting diverse viewpoints.
“Many market participants are likely unaware of this, as these media outlets often appear unrelated,” the study noted. Consolidation in the media industry, according to the research, may impair the media’s role as an intermediary of information.
Economic pressures drive media outlets to share content across networks, producing similar articles at the expense of unique, high-quality journalism. Shared content is more common among outlets with high audience reach, thereby amplifying the problem.
“It’s important to remember that this research isn’t saying the media is always biased,” Sun added. “We’re just demonstrating how investors should be aware of this scenario that exists in today’s media landscape.”
The findings, published in The Accounting Review, underscores the importance for investors to diversify their information sources to ensure a more accurate interpretation of market movements.