Abstract
This paper investigates the formation mechanism of media effect in Chinese stock market. We prove the existence of media effect in Chinese market and examine the three hypotheses (Impediment to Trade Hypothesis, Return Continuation and Reversal Hypothesis and Investor Recognition Hypothesis) of its formation mechanism respectively. We compare the media effect in Main Board, Small and Medium Enterprise Board, and Growth Enterprise Market respectively. We find media effect is most significant in Growth Enterprise Market and the result is consistent with Impediment to Trade Hypothesis. We divide our samples into 4 quartiles and the results are consistent with Return Continuation and Reversal Hypothesis. We can not find significant relationship between analyst reports and stock return, therefore we can not prove the validity of Investor Recognition Hypothesis in Chinese market. This paper sheds light on Chinese Multi-level Capital market and extends empirical results of media effect in Chinese market.
Highlights
The so called “Media Effect”, the effect of media report on capital market, has been a popular research field all over the world
This paper examines the formation mechanism of media effect in Chinese market by investigating the relationship between media report and stock abnormal returns
We examine hypotheses of formation mechanism of media effect in Chinese market
Summary
The so called “Media Effect”, the effect of media report on capital market, has been a popular research field all over the world. Media plays a role to assemble and convey information to different audience. It has great influence on society nowadays. There are three hypotheses of formation mechanism of media effect: Impediment to Trade Hypothesis (ITH), Return Continuation and Reversal Hypothesis (RRH), and Investor Recognition Hypothesis (IRH). RRH argues that stock return will reverse after high volume media reports. We first prove the validity of media effect in Chinese market. We contribute to the literature in two ways: First, we extend the research of media effect and provide additional evidence in Chinese listed market. We make comparison among different markets and provide unique evidence that GEM has more significant media effect than others. The rest is arranged as below: Section 2 demonstrates the literature review; Section 3 exhibits research hypothesis; Section 4 shows the models and data; Section 5 shows the empirical results; Section 6 makes conclusions
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