Essays in Applied Economics

In this paper we investigate the causal role of the media in disseminating information among financial operators. For this scope we consider the coverage of economic policy uncertainty (EPU) by media outlets in the USA. As a proxy for this coverage we implement the daily news based economic policy uncertainty index introduced by Baker et al. (2016). This index builds on the number of articles about EPU - normalized by the total number of articles - coming from a large set of US newspapers ranging from national journals like USA Today to small local newspapers across the country. To identify exogenous swings in coverage of EPU, we exploit the crowding out effect of publishable stories brought about by newsworthy sport events. In particular, we show that the abovementioned index systematically goes down the same days of the Olympics, the Worlds Series and the NBA finals. We interpret this evidence as supportive of the idea that these important occasions lead newspapers to publish in proportion less news about EPU, regardless the policy uncertainty of the economy. Then, we use our instrument to evaluate the effects of variations in EPU coverage on the VIX, a popular measure for expected volatility of the US stock market. According to our results, an increase of the daily news based EPU index by one standard deviation leads to a positive variation of the VIX equal to 3.61 points on the same day. These results are in line with the theoretical framework presented by Pastor and Veronesi (2013), with the media playing a role in disseminating EPU news to investors.