Getting Stuck on the Same Thing: How News Concentration Affects Investors' Decisions

What the media reports on has numerous consequences for financial markets. Of particular interest here is the effect on investor sentiment and trading activity. A 2025 study in the Journal of Behavioral Finance shows that the more the news agenda is tied to a few specific topics, the higher the likelihood that investors will overreact to incoming information. How can investors protect their portfolios from the flood of news?

Over the past two weeks, AI-related topics have been in the spotlight of the world’s leading media outlets: the capital expenditures of tech giants, their growing debt burden, deteriorating free cash flow metrics, and doubts about the return on investment in AI infrastructure.

Another major story is government debt and interest rates. News reports are highlighting budget problems in the U.S. and European countries, pressure on the government bond market, and the potential consequences of rising borrowing costs. Add to that the issues of geopolitical risks and a volatile oil market.

This concentration of news is statistically linked to a decline in investor sentiment, an increase in trading activity, and heightened volatility in the financial markets themselves. At the same time, market returns typically decline during such periods. These are the findings of the study “Overreaction to News Concentration in Financial Markets,” conducted in 2025 by researchers Oliver Budras, Mike Dirkes, and Florian Skade at the Institute of Banking and Finance at the University of Hannover (Germany). They analyzed approximately 314,000 articles in *The New York Times* from 1980 to 2021 and used an algorithm to categorize the articles into 140 topics. The authors then calculated the extent to which the actual distribution of articles differed from a hypothetically uniform distribution.

The main principle was this: the more news coverage there was surrounding specific topics, the higher the concentration index. Its peaks coincided with major events: the Gulf War in 1990, the collapse of Lehman Brothers in 2008, the European debt crisis in 2012 and 2015, and the onset of the pandemic in 2020.

The study's authors selected the days when the concentration of news reached particularly high levels—10% or more of the total range of topics covered in the publications—and compared stock price movements on those days.

Researchers note that investors’ initial reaction to the concentration of news and its negative content was excessive: stocks from the group that fell the most in price showed an abnormal negative return of about 4–5 percent. In other words, the prices of these securities fell by approximately 4–5 percentage points more than the market benchmark would have suggested.

However, in the trading days that followed, the initial decline was replaced by a recovery in prices, and after just nine trading days, the difference in cumulative abnormal returns exceeded 1 percentage point. Three months later, it reached approximately 1.3–1.4 percentage points.

In other words, the stocks that fell the most on days with a high concentration of news subsequently outperformed, on average, the stocks that had shown the strongest growth. At the same time, the stocks that had previously shown the greatest growth did not experience a comparable decline afterward. The market reacts not only to events but also to the degree of attention they receive.

The authors explain their observations through several behavioral mechanisms that every person possesses. One of these is limited attention span. An investor’s attention span—like that of any person—allows them to hold only a few units of meaning at a time. In other words, when the news flow focuses on specific topics—essentially, risks to investors—this information takes up a disproportionately large share of cognitive processing.

Another mechanism is a cognitive bias commonly referred to as the availability heuristic. It is tied to short-term memory: the more often a person encounters certain information, the easier it is for them to recall it. As a result, the probability of an event may seem higher than it actually is. Thus, constantly repeated publications can create the impression that a negative assessment has received numerous independent confirmations, even though it is often the same source being cited over and over.

Thus, whether they want to or not, investors evaluate not only the content of the information but also how intensely it is being discussed. However, the assessment does not always take into account all the reasons why this particular information is so prevalent in the public sphere. As a result, it receives undeserved attention when investment decisions are made.

First and foremost, it’s important to learn how to distinguish new information from information that has been reported on repeatedly in the press. Ten articles about the challenges of debt financing for tech companies do not necessarily mean ten new negative signals. It’s possible that they all draw on the same data source, such as recent statistics or a new research report from a major investment firm.

The second tool is to assess the extent to which the market’s reaction aligns with changes in fundamental indicators. If a stock price has fallen rapidly and sharply, it makes sense to first understand how much the expected cash flows and risk assessments have changed—that is, to look at the consensus, the P/E ratio, and so on. A high concentration of news stories—especially negative ones—on a specific topic does not, in and of itself, prove that the company’s performance has deteriorated.

The third tool is to define in advance the conditions under which your initial investment idea ceases to work. And for each condition, you can also develop scenarios for how events might unfold. This helps you avoid making decisions based on market sentiment and prevents you from confusing a price correction with a return to fundamental value.

This article was AI-translated and verified by a human editor