How does the media cover business and economics

A I N - D E P T H A N A L Y S I S

B Y R A M Y S I M P S O N

How does the Media cover Business and Economics?

Lesson Modules

Module 1: The media’s effect on the stock market and how the media covers the stock market.

Module 2: How does the media affect the public perception of the economy?

Module 3: Business Journals

T H E M E D I A ’ S E F F E C T O N T H E S T O C K M A R K E T A N D H O W T H E M E D I A C O V E R S T H E

S T O C K M A R K E T

Lesson Module One

Learning Objectives

The correlation between media stories and stock market reactions.

How media outlets choose which business stories to cover.

What makes local media important?

The importance, relevance and geographic proximity of news in relation to local media.

The correlation between media stories and stock market reactions

With or without media attention, when firm fundamentals change, investors respond.

The media just makes knowledgeable facts known to a broader audience.

Example of Media’s Influence

In 2007 Detroit News ran an article about how local firm DTE Energy had third quarter gains that surpassed their previous years revenue and were now worth $1.16 per share. In the fourth quarter DTE had more gains and were worth $1.56 per share, Detroit News did not report these gains. As it turned out, overall trading was 21% higher the first three days after the third quarter then the fourth quarter, even though the fourth quarter gains were higher.

0 1 2

Previous Year

Fourth Quarter

Third Quarter

Earnings Per Share

Earnings Per Share


- Another Example of Media’s Influence:

Studies have shown if local media reports a company’s earnings on a specific day, local trading increases on that specific day.

If a local media outlet in Phoenix reports on a companies earnings or losses on a Wednesday, an increased amount of trading in Phoenix will occur on that Wednesday. If Seattle reports the same news a day later on Thursday, an increased amount of trading in Seattle will occur on that Thursday.


A reason why news might get to a city a day later is poor weather. In today’s internet era, news will find ways to arrive in every city at the same time. However in the pre-internet era, specifically the 90’s, news came from local papers, and if weather prevented newspapers from getting door to door, news would be delayed for many people.

F A C T O R S :

L O C A L M E D I A

I M P O R T A N C E

R E L E V A N C E

G E O G R A P H I C P R O X I M I T Y

How media outlets choose which business stories to cover


Obviously if a report on a business deserves National attention, it will be a top priority for all media outlets. It is both important and relevant to people across the nation. Media outlets will cover these stories, such as scandals, the same way. They will explain what happened and provide their own biases.

However what really differentiates media outlets across the country is how they cover business news that isn’t worth National attention. How do they decide what business news to report on?


What seems to be apparent from studies is that the media in a town is more likely to report business news relevant to that town. Geographic proximity is important when it comes to news.

For example, the Atlanta Journal Constitution is more likely to report updates from a business in Atlanta than the Pittsburg Post Gazette is.


This has an effect on local trading on the Stock Market.

Local media coverage increases local trading by an estimated 75% in the typical market.

Quiz

What kind of effect do you think the Media has on daily trading?

No effect

Minimal effect

Decent effect

Huge effect

H O W D O E S T H E M E D I A A F F E C T T H E P U B L I C P E R C E P T I O N O F T H E E C O N O M Y ?

Lesson Module 2

Learning Objectives

How closely related are public evaluations of the economy to the news coverage of the economy?

How does the way the media covers the economy reflect real economic conditions?

Does the media follow both positive and negative economic conditions evenly?

Why does the media cover the economy in the biased way it does?


Citizens are more concerned with the economic future rather than the economic past.

Even though the information is widely available, many citizens don’t know much at all about true economic conditions. Their ability to analyze economic information given to them is questionable.

This makes citizens extremely impressionable when the media talks about the economy.


"Without trying, the public is exposed to the best information about the economic future that exists. Merely by noting that most forecasters say good (bad) times are ahead, the public becomes subject to the causal influence of the professionals' more esoteric tools."

How does the way the media covers the economy reflect real economic conditions?

Research shows that the media tends to emphasize negative economic news.

This makes the public pessimistic about future economic conditions.

Republicans claim that this hurt the Bush reelection campaign.


The media does not completely leave out positive economic news, it is included a lot of the time.

Robert Goidel and his team collected 95 articles and analyzed them. His team concluded that media coverage of the economy does reflect real economic conditions to a certain point.

A huge difference is that negative changes in the economy are emphasized a lot more than positive changes in the economy.


This emphasis of negative changes in the economy makes the public more pessimistic about their futures.


It appears that during the 1992 election, the media overemphasized the negative news about the economy.

The Bush administration repeatedly claimed that the media was focusing a lot more on the negative aspects and not the positive aspects.


Is this true?

Well according to the research done by Goidel and his team, it appears Bush received 30 more negative news articles then he would have if the articles were written based solely on economic conditions.

Why is this?

It is not clear, maybe possible liberal bias.

Lesson Module 3: Business Journals

Learning objectives:

What differentiates “The Wall Street Journal” and “Financial Times”.

The Wall Street Journal

• The Wall Street Journal is an international daily newspaper published in New York City.

• The largest newspaper in the United States with 2.1 million copies in circulation.

• Mainly covers American International Business, economics, and financial news.

• Has won the Pulitzer Prize, a prestigious award for newspapers, 33 times.

The Wall Street Journal Economic Views

A recent study done by Tim Groseclose and Jeff Milyo compared 20 Journals, and showed that the Wall Street Journal had liberal economic and political views.

The Journal emphasizes free markets and blames the United States budget deficit on a lack of foreign growth.

The journal is a huge supporter of supply-side economics and believes in a fixed exchange rate over a floating exchange rate.

Wall Street Journal Glossary

1) Supply-side Economics.

2) Fixed Exchange Rate

3) Floating Exchange Rate

1) Lowering the income tax so more goods can be produced.

2) When a Government sets an official exchange rate that will be maintained between different currencies. For example, if a Euro is set as worth $2, central banks will have to have enough money in reserve to account for that.

3) A constantly changing exchange rate based on how valued a currency is.

Financial Times

• Published in London and has 2 million Daily readers.

•

•Huge Rival of Wall Street Journal.

•Provides full daily news on World Markets.

The “Financial Times” Economic Views

Advocates free markets, just like its “The Wall Street Journal” rivals. It is also a big supporter of globalization.

Supports the idea of the government controlling the amount of money in circulation.

Pro-European Union.

Tends to be liberal with its economic views.

Accused by the Wall Street Journal of overemphasizing its Keynesian views.

Financial Times Glossary

• 1) Free Markets

•2) Globalization

•3) Keynesian Views

1) Competitive market where prices are determined at the equilibrium value of supply and demand.

2) The distribution of goods nationally through decreasing import taxes and tariffs, which increases international trade.

3) The government should increase spending and/or decrease taxes to boost demand during a recession.

Similarities between “The Wall Street Journal” and the “financial Times

Extremely similar in their economic views.

Both advocate for free markets and have mainly liberal views.

Both believe best way to fight a recession in the very least is to lower taxes.

Differences between “The Wall Street Journal” and the “financial Times

Not to many differences, but some noticeable slight differences.

Wall Street Journal believes producing goods more domestically is the best way to maintain a good economy.

Financial Times believes best way to maintain a good economy is increased globalization.