Asset Returns, News Topics, and Media Effects

50 Pages Posted: 24 Oct 2017

See all articles by Vegard Larsen

Vegard Larsen

Norges Bank

Leif Anders Thorsrud

Norges Bank; BI Norwegian Business School

Date Written: September 19, 2017


We decompose the textual data in a daily Norwegian business newspaper into news topics and investigate their predictive and causal role for asset prices. Our three main findings are: (1) a one unit innovation in the news topics predict roughly a 1 percentage point increase in close-to-open returns and significant continuation patterns peaking at 4 percentage points after 15 business days, with little sign of reversal; (2) simple zero-cost news-based investment strategies yield significant annualized risk-adjusted returns of up to 20 percent; and (3) during a media shortage, due to an exogenous strike, returns for firms particularly exposed to our news measure experience a substantial fall. Our estimates suggest that between 20 to 40 percent of the news topics' predictive power is due to the causal media effect. Together these findings lend strong support for a rational attention view where the media alleviate information frictions and disseminate fundamental information to a large population of investors.

Keywords: Stock Returns, News, Machine Learning, Latent Dirichlet Allocation (LDA)

JEL Classification: C5, C8, G4, G12

Suggested Citation

Larsen, Vegard and Thorsrud, Leif Anders, Asset Returns, News Topics, and Media Effects (September 19, 2017). Norges Bank Working Paper 17/17, Available at SSRN: or

Vegard Larsen (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, Oslo N-0107
+4745831155 (Phone)


Leif Anders Thorsrud

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

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