News sentiment and consumer behavior [Dubai (HoF 1.27)!!]
Abstract: This paper examines the effect of news sentiment on consumption behavior. We employ a novel identification strategy which combines cross-sectional variation in pre-determined shares of major US newspapers in online news readership with time variation in sentiment of the headlines of articles about the national economy published in these newspapers between 2011 and 2015. Using the Consumer Expenditure Survey (CEX) we provide evidence that households with internet access increase their consumption when exposed to more positive sentiment, but households without internet access do not react. We also exploit an event-study analysis which uses the drop in economic sentiment in articles published by the Washington Post that was ignited by the take-over of the newspaper in August 2013. In line with our previous results we find that individuals with access to the internet and from states with a higher readership share of the Washington Post decrease their consumption. Finally, we provide evidence that the effects we uncover operate through a belief channel. We leverage data from the New York Fed’s Survey of Consumer Expectations to highlight that increases in sentiment lower people's perceived chance of job loss.