The cover story effect : investors reactions to cover stories and the impact on share price

The objective of this study was to analyse the impact of business magazine coverstories, albeit positive, neutral or negative, on the share price of the featuredcompany. Two of the aspects of investment finance are rational behaviour andefficient markets. Both of these concepts were explored to understand why a coverstory would have an impact on a company share price. Causal research was conducted to analyse the correlation between a magazinecover story and the featured companys share price. The cover stories werecollected form the Financial Mail and Finance Week archives. The holding periodreturns were calculated and compared to zero to analyse whether there was anymomentum or contrarian signals. The holding period returns were also adjusted forthat of the average of the resources index (J258) to ascertain whether the returnswere abnormal or not. The results have shown that in some instances, such as with neutral cover stories,the markets show strong signs of efficiency. The results of positive cover storiesshowed these to be momentum indicators, however when the results wereadjusted for the resource index, many the positive returns dissipated. Negativecover stories had the strongest results, where after the cover story there were clearcontrarian signals. Most of the companies stopped showing negative returns. Copyright © 2010, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. Please cite as follows: De la Port, D 2010, The cover story effect : investors reactions to cover stories and the impact on share price, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-04042011-192338/ > F11/125/ag