Blinded by Perception? The Stock Market’s Reaction to Politically Aligned Media
68 Pages Posted: 6 Dec 2016 Last revised: 20 Apr 2020
Date Written: April 15, 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 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: Suggested Citation