DEFINITION of 'Media Effect'
A theory that relates how stories published in the media influence or amplify current trends. Borrowers or investors will read an article and be influenced to act quickly on the news. The media effect is often seen in the mortgage market, when prepayment rates can sharply increase following specific news stories.
BREAKING DOWN 'Media Effect'
The media effect causes increases in the number of refinanced mortgages during low interest rate periods. For example, let's say The New York Times publishes a story revealing a drop in interest rates and how it relates to mortgages. The media effect dictates that those who read the article are more likely to increase the prepayment rates on their mortgages and refinance according to the story.