Trade war, media tone and market reaction asymmetry

Wenjia Zhang and Julan Du

Journal of Chinese Economic and Foreign Trade Studies, 2023, vol. 16, issue 2, 153-171

Abstract: Purpose - This study investigates the impacts of Chinese media reporting strategy (media tone) on the market performance of US-trade-intensive firms vs non-US-trade-intensive firms and the effect of media tone on the occurrence of good and bad news. Design/methodology/approach - News texts were retrieved from nine major financial/economic media outlets. Lexical analysis and event study have been adopted to examine the impact of different types of news during the US–China trade frictions on Chinese firms. Findings - The results show that US-trade-intensive firms vs non-US-trade-intensive firms exhibited different reactions to media coverage. US-trade-intensive firms care more about the governmental attitudes toward the trade war and potential policy supports implied in the official media reports than non-US-trade-intensive firms do. The return-chasing behavior hypothesis is supported by US-trade-intensive investors, and this effect is further enhanced when multiple releases occur on the same day. A higher media tone combined with intensified media releases significantly increases the volatilities of both US-trade-intensive and non-US-trade-intensive firms. Practical implications - Information provided by this study helps the regulatory authorities to formulate measures to enhance investor confidence and better optimize resource allocation. Originality/value - This study investigates the asymmetric effect of media tone on US-trade-intensive firms vs non-US-trade-intensive firms, which has not been examined, to the best of the authors’ knowledge, in the existing literature.

Keywords: China–US trade war; Media tone; Trade-intensive (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jcefts:jcefts-10-2022-0064

DOI: 10.1108/JCEFTS-10-2022-0064

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