By Ujjwal Dahuja
“All media exist to invest our lives with artificial perceptions and arbitrary values.”
This is what Marshall McLuhan, a communication theory philosopher, believes is the role of the media in a market bubble. Generalized, though the claim might be, McLuhan’s claim in fact resonates not only with the claim of this year’s Economics Nobel Prize winner, Robert Shiller, who too argues that the media is a “fundamental propagator of speculative price movements that actively shapes public attention and categories of thought” behaving like a “monolithic force pushing ideas onto a purely passive audience”, but also with a number of other scholars.
Shiller believes that the media plays an active role in a market environment because its actions not only have a correlation with stock prices, but causation too. (Watch this short video from the movie, ‘Inside Job’ for an example of how the media plays an active role. Read this interview if you wish to see more examples.) However, scholars Neal Galpin, Rina Ray, Utpal Bhattacharya and Xiaoyun Yu, among others, posit that while there may be an epiphenomenal relationship between media’s actions and stock price movement, there certainly isn’t a causal one because “the new news effect of the media dies out after two trading days” and therefore “the media is not a major determinant of the bubble”.
Wait, what? Didn’t Mr. Nobel Prize winner and communication theory philosopher just preach otherwise? I’m confused. Who of these giants is right? But before I address that question, I must address what it even means to conclude that the media plays an active or passive role. I guess there are two parts to this question. First that the efficient market hypothesis, upon which a huge chunk of modern day economic theory rests, supposes that the information provided by the media is an accurate and objective representation of market equilibrium. Therefore, if we happen to conclude that the media plays an active role in manipulating this information, the efficient market hypothesis and consequently all the economic theory that rests upon it would fall. Secondly, because of the opposing viewpoints of these giants who have consequently found support from other scholars, a deadlock has been created in the academic world, which is preventing research on market bubbles from an informational standpoint. Therefore, by addressing this question, we might not only be able to recognize why the deadlock is there in the first place, but also be able to effectively resolve it.
In my view, this academic deadlock results from both sides sharing a common faulty assumption that the media can be treated as a monolithic force, the constituents of which behave in exactly the same manner. I claim this because in my opinion not only are different media types such as broadcast media and print media different in the way they disseminate information but also media conglomerates of the same media type. These differences consequently result in each media conglomerate having a different amount of impact on stock price movements, which is to say that it is incorrect to claim that all of the media is responsible for stock price movements.
Consider print media and broadcast media for instance. Print media not only has lesser avenues of being theatrical, but also lacks dynamic visual elements in reporting. In addition, print media also has the time benefit of not having to report news every second and tends to be less repetitive. Consider this evidence amassed from primary research which involved watching three different programs of CNBC and reading five different articles of The Wall Street Journal as broadcasted or published during the US real estate market bubble period from January-June of 2005.
While television shows of CNBC such as ‘Morning Call’ constantly circulated and repeated news material on daily morning shows, there was no repetition to be found on the Wall Street Journal. Furthermore, while CNBC bombarded its viewers with sensationalist ticker tapes and ‘breaking news’ through shows such as ‘Market Watch’ and ‘The Call’, The Wall Street Journal focused more on content and less on panache or style while reporting news to its readers. This tendency to ‘perform’ news, shows how broadcast media has a larger impact on public perception and consequently stock price movements when compared to print media. These differences, however, exist not only among different types of media but also within different media conglomerates of the same media type.
Consider, for instance, the reporting of Fox News and Bloomberg News Channel during the same period. In this time frame, while the main focus of Fox News was to ‘instruct’ its viewers to invest in certain types of stocks, Bloomberg’s focus was on ‘what’ is going on in the stock market. For instance, on ‘Fox & Friends’, a morning show on Fox News, presenter Gretchen Carlson regularly used phrases like ‘Go out and win it’ to persuade viewers to invest in certain types of stocks, while Bloomberg’s morning show was dominantly focused on educating the readers by simple reporting of stock prices. In addition, while Fox News was often shown displaying graphs projecting growth in stock price in nominal terms, Bloomberg’s statistics were often extremely accurate. Other factors such as performing and repeating news also differentiated the two conglomerates.
These differences, as mentioned earlier, result in different amount of impact on stock price movements but they do not suggest, however, that both sides of scholars have come to completely flawed conclusions. In my view, both sides of scholars have come to valid conclusions but the scope of the validity of their conclusions is rather narrowly defined. For instance, the active group’s conclusion is more pertinent for media conglomerates that succumb to corporate interests or to conglomerates that target the masses. This is because mass media, quite often, resorts to simplistic, rhetorical and performance-based financial news reporting. Similarly, the passive group’s conclusion is more relevant for media conglomerates that serve either as independent or earned media.
What this conclusion implies is that the media is too heterogeneous a market participant for us to claim whether it plays an active or passive role. What also follows is that the efficient market hypothesis does hold true but only for some constituents of the media sphere.
