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Title: Much Ado About Nothing: Is the Market Affected by Political Bias?

Author(s): Mancy Luo, Alberto Manconi and Massimo Massa

Publication Date: April 2017

Keyword(s): Media and financial markets and political bias

Programme Area(s): Financial Economics

Abstract: We study whether investor behavior is affected by a political bias. We exploit an exogenous change in the marketâ??s perception of political bias in the media: the 2007 acquisition of Dow Jones Newswires (DJNW) by News Corp. We find that investors react to a perceived pro-Republican bias of DJNW: after the acquisition, the prices of "Republican"? stocks (stocks of firms making political contributions to the Republican Party) become less sensitive to sentiment in the DJNW. The effect is restricted to DJNW news, and cannot be detected in information channels unaffected by the News Corp. acquisition, such as corporate press releases and earnings surprises. It also appears driven by stocks traded by more profitable investors, short-term investors, and investors more likely to have a Democrat leaning. Finally, we show that in fact the New Corp. acquisition unlikely introduced a political bias in DJNW: there is no significant change in DJNW sentiment for the average Republican (or Democrat) stock after 2007. This suggests that the market tends to counteract a perceived media political bias, and is not always capable to distinguish between real and perceived biases.

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Bibliographic Reference

Luo, M, Manconi, A and Massa, M. 2017. 'Much Ado About Nothing: Is the Market Affected by Political Bias?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11991