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Study: WSJ articles can help predict stock market returns

Financial news articles can be a good short-term indicator of why the U.S. stock market is doing well or poorly, according to a National Bureau of Economic Research study, reports Clark Merrefield of The Journalist’s Resource.

Merrefield writes, “The authors organized the Journal articles by topic, then predicted what aggregate S&P 500 returns would look like based on those topics the Journal was covering. Coverage of economic events that might affect market returns, like recessions, fluctuate over time. When the economy is doing well, fewer stories use the word ‘recession.’ An uptick in recession-related stories would, for example, lead their model to predict lower overall S&P 500 returns.

“Each day, the 505 publicly traded firms that make up the S&P index gain or lose value, or stay roughly the same. For their 23-year sample of news articles, the authors compared their predictions of monthly S&P 500 returns with actual S&P monthly returns. Across all months in their sample, predictions based on the Journal articles amount to one-quarter of the actual returns, on average.

“That makes Journal coverage a stronger indicator and potential short-term predictor of market performance than even certain federal macroeconomic data, according to the authors.”

Read more here.

Chris Roush

Chris Roush was the dean of the School of Communications at Quinnipiac University in Hamden, Connecticut. He was previously Walter E. Hussman Sr. Distinguished Professor in business journalism at UNC-Chapel Hill. He is a former business journalist for Bloomberg News, Businessweek, The Atlanta Journal-Constitution, The Tampa Tribune and the Sarasota Herald-Tribune. He is the author of the leading business reporting textbook "Show me the Money: Writing Business and Economics Stories for Mass Communication" and "Thinking Things Over," a biography of former Wall Street Journal editor Vermont Royster.

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