Media: Where The Blame Ought NOT to Be

For a news engine such as the media – most especially when it is embodied by one such as Jim Cramer – its long history has been unfairly associated with many accusations of perpetuating, starting and inflating a lot of bubbles. There is also a new study which takes a closer look into the bubble of the dotcom business back in the late nineties and then ended up declaring otherwise.

Pending Entry to a Finance Journal

This particular study was conducted by Utpal Bhattacharya, Rina Ray, Neal Galpin and Xiaoyun Yu. Their research work is soon to be published in the Journal of Financial and Quantitative Analysis. The study shows that the authors were able to take a look into several news articles which had been released from the period of 1996 to 2000. This was regarding four hundred and fifty eight initial public offerings on the Internet and four hundred and fifty eight public offerings that were made outside of the Internet as a news source.

Every single one of the one hundred and seventy one thousand, four hundred and eighty eight news items that were deemed relevant were also organized as being good news, bad news and neutral news. It was not surprising to note that all of the news coverage about the dotcom initial offerings was a lot more positive compared to the non-dotcom initial offerings at the time of the bubble. Furthermore, this was also more negative when it is compared to its counterparts which are not of the Internet. This study also reveals that there might be some actual effects of such a coverage as it had on some stock prices after several days.

More Findings of the Financial News Study

Lagged abnormal returns were deemed as the control variables in study, as well as market capitalization, contemporary and previous news, it was revealed that the net news of today pretty much has a positive correlation to the risk-adjusted returns of today as well as tomorrow. Then again, if the net news dies down right after the two trading days which will commence for the Internet and non-Internet IPOs it will also have a different effect. It might then show that the risk-adjusted return of today’s net news might definitely be lower compared to the Internet IPOs that the non-Internet IPOs. Of course, this is only if it is within the bubble period. If such is the case, it might then be implied that the good news of today will matter a lot less compared to the news of tomorrow regarding risk-adjusted returns of Internet IPOs. This is also connected to whether risk-adjusted stocks are made or portfolios are risk-adjusted as well for Internet or non-Internet stocks.