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Our blog entry of 8/22/06 summarized investor-relevant conclusions of the October 2004 paper entitled "Is Newspaper Coverage of Economic Events Politically Biased?" by John Lott Jr. and Kevin Hassett of the American Enterprise Institute. These conclusions suggest that a pro-Democrat/anti-Republican bias in the mainstream media may affect the economic risk perception of some investors/potential investors, thereby affecting stock valuations. In response to this entry, a reader who prefers anonymity sent a note stating "This refutes the study" with a link to a Media Matters article that has a section entitled "AEI study on media bias flawed". We investigated as follows:
We searched the Social Sciences Research Network (SSRN), the source of the paper, to see whether anyone has posted a refutation of it. We could not locate a refutation at SSRN. We did discover an October 2004 posting of a paper entitled "Consumer Sentiment, the Economy, and the News Media" by Mark Doms and Norman Morin of the Federal Reserve System finding that news coverage of economic data affects consumer sentiment.
We contacted Mr. Hassett, who stands by the methodology and conclusions of the paper and regards the Media Matters critique as having no substantive points.
Readers may want to review the entire paper and decide for themselves whether its approach and results are reasonable, and whether the results are meaningful regarding investor sentiment and the behavior of financial markets.
We are adding a note to our blog entry of 8/22/06 linking to this follow-up.
For related research, see Blog Synthesis: Sentimental Journey, encompassing a broad range of equity market sentiment measures. See also our blog entry of 8/8/06, which examines whether the stock market does better under Democratic or Republican presidents.
