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

See all articles by Mancy Luo

Mancy Luo

Erasmus University

Alberto Manconi

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

Massimo Massa

INSEAD - Finance

Date Written: October 18, 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 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

Luo, Mancy and Manconi, Alberto and Massa, Massimo, Blinded by Perception? The Stock Market’s Reaction to a Perceived Political Bias in the News (October 18, 2020). Available at SSRN: https://ssrn.com/abstract=2879939 or http://dx.doi.org/10.2139/ssrn.2879939

Mancy Luo (Contact Author)

Erasmus University ( 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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