Media and Investment Management

We classify news items about equity hedge funds over 1999-2008 into three source groups: General newspapers, Specialized magazines, and Corporate Communication. Applying a textual analysis to news items, we uncover three types of media biases. First, a reporting style bias, that is, when a fund is covered by multiple sources at the same time, the sentiment is most positive in Corporate coverage and least in General coverage. The differences in source sentiment are more significant in cases of exclusive coverage, indicating a second bias, editorial selection. Finally, examining post-coverage, sentiment-adjusted fund performance, we document that Corporate-covered funds outperform and General-covered funds underperform, with a performance difference of about 11% annually. This result suggests a content bias, consistent with fund managers presenting conservative, pessimistic forecasts, while reporters present relatively more optimistic views. However, investor fund flow does not react to this information, which suggests that investors do not seem to exploit valuable information embedded in media coverage.