The Impact of Business and Economics News on Investor Attention

Using the Pew Center’s News Coverage Index, we build daily indices capturing the importance of newsworthy events related to business and economics (BE), government, and other topics. Days with high BE news have higher market-level absolute returns, illiquidity, trading volume, and expected volatility. Corporate earnings announced on days with higher BE news tend to have stronger announcement-window reactions and weaker post-earnings announcement drift. Consistent with attention effects related to retail investors, these effects are concentrated in firms with lower institutional ownership. Our findings suggest that exogenous news events can attract investor attention to the stock market and improve price discovery. JEL classification: G14; G41; M41.