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Media Co-coverage and Overreaction in Cross-Industry Information Transfers

This study documents that media co-coverage—a phenomenon where multiple firms are simultaneously mentioned in the same news article—induces excessive information transfers between two economically unrelated firms. Using firms from different product market industries that are co-covered in the same Wall Street Journal article, I find that post co-coverage, the stock price of one co-covered focal firm reacts positively to the earnings surprise of another early-announcing co-covered peer, followed by a reversal on the focal firm’s subsequent earnings announcement day, while there is no reaction to the peer’s earnings news in the pre-co-coverage period. This post-co-coverage cross-industry information transfer and the associated reversal cannot be explained by changes in the relatedness between the two firms before article publication, but are positively correlated with changes in investors’ perceived relatedness on the article publication day. Further analysis shows that the transfer and reversal are concentrated among firms with higher cost of arbitrage and more active retail investor trading. These findings suggest that the financial media, through co-coverage, can lead to inefficient cross-industry information transfers.