Media coverage and stock market returns: Evidence from China Pakistan economic corridor (CPEC)

Abstract

The primary source of investor interest that disrupts the financial markets is news that reflects the macroeconomy. This study intends to track changes in investors’ positive and negative market attention and their effects on stock market returns by examining the print media portrayal of the China–Pakistan economic corridor (CPEC). We access the daily and weekly coverage of the CPEC by national and international newspapers from the Bloomberg database over the period from January 2015 to December 2019. Using the Harvard psychological dictionary, we categorize the news headlines into positive and negative news sentiments. We then relate the news sentiment to the stock market returns, using quintile analysis, ordinary least squares (OLS), and vector autoregressive (VAR) models. The results show that investors react quickly and significantly to positive news. They pay more for the same stock if the positive news stream increases; hence, the stock market return also increases. In contrast, investors do not react with the same passion to an increase in negative news. These findings are in line with the theoretical rationale of the disposition effect. These outcomes may be useful for active investors and practitioners to devise investment strategies in the presence of the hype surrounding the CPEC in the print media.

Keywords

• China–Pakistan economic Corridor
• Print media
• Stock market returns
• Ordinary least squares