Market Cap Vs. Coverage

You might think that larger market caps lead to more media coverage, and in general you would be correct, but today I’d like to drill down a bit into what this relationship really looks like. We first look at the simple plot of market cap vs. observations in our database (since April 1, 2010) for S&P500 companies:

In general, we see a general increasing trend but the variability is fairly high. In fact, the largest company, Exxon Mobil is ~35% larger than the next highest company, Apple, and yet we have observed 75% less content associated with it. In fact, 30+ companies have more associated content than Exxon Mobil.

Another way to look at this data is using log scales for each of the variables.

This certainly indicates a reasonably linear trend and indeed, the R2 for a regression line is ~.3. Looking at the industry sectors that seem to be present on the high side of the data for a given market cap, we see evidence of higher than average coverage associated with some of the companies in the Information Technology and Consumer Discretionary categories along with a few representatives from the Financial sector. In the lower portion of the data, we again see companies from Industrials, Materials, Staples and Financials.

When we drill into any local area of this dataset, we still see a high degree of variability. Consider the collection of companies between $10B and $20B in market cap (just over 20% of the total number of companies). We examine the distribution of the log of the market caps for these companies on a histogram and note that while the range of the company size is a factor of two, the range of the media coverage is roughly two and a half log steps, or roughly a factor of 300.

In fact if we look at the histogram for all of the companies, it does not look all that different:

So while there is a relationship between market cap and media coverage, it's not nearly as strong as we might think.

Taking a closer look at individual industries shows the relationships we observe on a per-industry basis. You can see different slopes, intercepts and R2 values for the different industries.

There are numerous implications to consider about this from a news analytic/trading strategy. Do the different levels of news reflect different levels of speculation about different companies? Are lower volume news companies more likely to respond to news events than high volume companies because of the scarcity of events?

In any case, this is a phenomenon one would want to better understand when using news analytics to support an investment strategy as companies of similar sizes can have very different media flow.