Media tone and expected stock returns

We find that media tone reflects firm -level expected returns-firms with low -negative tone stories over a few months earn higher returns in the medium to long term than do firms with high -negative tone stories. The tone premium is driven by consistent outperformance of low -negative stocks, while high -negative stocks do not produce significant abnormal returns. The media tone effect is associated with some common risk factors, among which the size factor plays a consistent and most significant role. The tone effect also reflects differences in firms' idiosyncratic risk, and there is evidence that it is partially related to mispricing and limits to arbitrage.