Work

When echoes surpass voices: Market reaction to forwarded news

Year: 2024

Type: article

Abstract: We examine the impacts of two types of news, forwarded news and novel news, on market reactions and investor attention in the Chinese stock market. Surprisingly, we find that forwarded news evokes a stronger market reaction than novel news. To understand this phenomenon, we investigate and find three mechanisms through which forwarded news influences investor behavior: filtering, verification, and amplification effects. The filtering effect shows that forwarded news, having been selected for resharing, contains information content that has persistent effects on stock return. The verification effect indicates that forwarded news, particularly following scandals involving news platforms, is perceived as more credible, thus eliciting a stronger market reaction. The amplification effect shows that the redistribution of news magnifies its reach and captures investor attention, leading to increased investor search and trading on the stocks. Moreover, the impact of forwarded news on investor attention is more pronounced for firms with greater information opacity. Our results show the distinctive roles of forwarded news and novel news in the financial market, highlighting the importance of considering the heterogeneity of news information. • Forwarded news evokes a stronger market reaction than novel news due to filtering, verification, and amplification effects. • The filtering effect shows that forwarded news contains fundamental information, indicating that news platforms filter and forward more informative news. • The verification effect shows that market reacts stronger to forwarded news, particularly after news platform scandals where credibility is valued. • The amplification effect shows that forwarded news captures investor attention and increases searching and trading activities.

Source: International Review of Financial Analysis

DOI: 10.1016/j.irfa.2024.103579

Authors: Jiaxin Duan, Fangyuan Kou, Zining Wang, Yixin Wei

Institutions: Macau University of Science and Technology, University of Exeter, University of Bristol, Auckland University of Technology

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,490

Funder: Macau University of Science and Technology