Blinded by Perception? The Stock Market’s Reaction to a Perceived Political Bias in the News
66 Pages Posted: 6 Dec 2016 Last revised: 19 Oct 2020
Date Written: October 18, 2020
We use the 2007 acquisition of Dow Jones & Co. by News Corporation to study whether the perception of a news source’s political affiliation affects its credibility and financial market impact. Following 2007, the price of Republican- (Democrat-) aligned stocks becomes less sensitive to positive (negative) Dow Jones Newswires (DJNW) sentiment, consistent with the market perceiving a pro-Republican bias. There is, however, no evidence of an actual bias in DJNW, suggesting a loss of price informativeness. Consistent with this view, a trading strategy exploiting the attenuated reaction to DJNW news earns abnormal returns following 2007.
Keywords: Political bias; Media and financial markets; news analytics.
JEL Classification: G00, G14
Suggested Citation: Suggested Citation