Very interesting piece of media research discussed in this week's Economist. Three researchers at RichmondU's Robins School of Business have studied the companies that featured on the cover of three US business magazines (BusinessWeek, Forbes and Fortune) over a period of 20 years, to try to determine whether positive stories were associated with superior future performance and negative stories with inferior future performance of the featured company -- in other words, whether the coverage was a good predictor. (Quick answer: yes, but in reverse).
They identified 549 cover stories, categorized them into positive and negative, and looked at how the shares of those companies had performed in the 500 days before and the 500 days after the covers appeared. Result: the companies that had received the most positive coverage had performed well before the stories were published; those that suffered negative coverage had underperformed. But after the stories appeared, the positions switched and the most negatively portrayed managed to beat the market, whereas the outperformance of the media darlings fell to just a few percent. Comments the Economist: "This difference is not statistically that significant. What matters is that if news is sufficiently good or bad to catapult a company onto a magazine cover, then it is already reflected in its share price".
Or, as the researchers put it in their paper, "positive stories generally indicate the end of superior performance, and negative news generally indicates the end of poor performance". No wonder the paper's title talks of cover stories as "effective contrarian indicators". Not particularly flattering for journalists. (Abstract - the full paper, published in the Financial Analysts Journal, can be downloaded in PDF here - 280 Kb).
Coincidentally, discussing the recent arrival on the market of a new US business magazine, Condé Nast's Portfolio, Robust art coverage in business magazines is a canary in a mineshaft. During the last boom, by the time Fortune and Forbes got around to it, the market bust was already around the corner".