Blinded by Perception? The Stock Market’s Reaction to Politically Aligned Media

68 Pages Posted: 6 Dec 2016 Last revised: 20 Apr 2020

See all articles by Mancy Luo

Mancy Luo

Erasmus University - Rotterdam School of Management

Alberto Manconi

Bocconi University - Department of Finance; Centre for Economic Policy Research (CEPR)

Massimo Massa

INSEAD - Finance

Date Written: April 15, 2020

Abstract

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 impact on financial markets. Following 2007, the prices of “Republican” stocks (making contributions to the Republicans) become less sensitive to Dow Jones Newswires (DJNW) sentiment, relative to “Democrat” stocks. There is, however, no evidence of a 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: Media and financial markets; news analytics; political bias

JEL Classification: G00, G14

Suggested Citation

Luo, Mancy and Manconi, Alberto and Massa, Massimo, Blinded by Perception? The Stock Market’s Reaction to Politically Aligned Media (April 15, 2020). Available at SSRN: https://ssrn.com/abstract=2879939 or http://dx.doi.org/10.2139/ssrn.2879939

Mancy Luo (Contact Author)

Erasmus University - Rotterdam School of Management ( email )

Burgemeester Oudlaan 50,
Mandeville Building, Room T08-47,
Rotterdam, 3062PA
Netherlands

HOME PAGE: http://sites.google.com/site/mancyluofinance/

Alberto Manconi

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://mypage.unibocconi.eu/albertomanconi/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

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