An empirical analysis of the impact of media coverage on stock returns

Abstract

Behavioral finance believes that investor behavior will be influenced by psychological factors, while investor behavior has a direct impact on asset pricing. This paper selected the monthly data of Shanghai and Shenzhen Exchange A shares from January 2016 to December 2016 by simple random sampling. We defined media variable as the number of media coverage which is obtained from Baidu’s news search engine and established a panel model. We tried to explore the influence of media coverage on investor sentiment and stock returns, and to see which effect is more significant among the stock groups with different degree of media coverage. A pretest of simple correlations reveals the number of media reports lagged behind the first phase negatively affects the stock return rate of this period. The result shows that there is an “attention driven effect” in the low- middle level of media coverage group, the “media effect” exists in the middle-high level of media coverage group and the “media effect” exists in Chinese stock market through single factor analysis of variance. Moreover, this paper classifies the samples with control variables and shows that the media effect is significant.