Investigating the Impact of Media Sentiment and Investor Attention on Financial Markets

Media sentiment has been shown to be related to stock returns. However, one prerequisite for this influence has not been taken into account yet: the question of whether investors actually pay attention to news and the related financial instruments. Within this study, we close this research gap by examining the interplay between media sentiment and investor attention. Thereby, we find that the positive impact of media sentiment on returns is increased when investor attention is high. Furthermore, we evaluate whether these variables can be used to forecast future market movements. Although our results reveal that the obtained forecasting accuracy cannot be achieved by chance, we conclude that further information has to be included in the forecasting model to obtain satisfying results.