Hot off the press: can media-expressed negative tone affect the Philippine stock market?

• Main Authors: Cang, Danielle Marie G., Diamada, Weddy Anne R., Roca, Jayvee G.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Capital market; Stock exchanges > Philippines; Efficient market theory; Investments > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/5721
• Institution: De La Salle University

At this age of information where media has become such a significant force in society, it begs the question, Can media influence the way investors make their investment decision? One of the most important assumptions of behavioral finance is that investors make use of information, which include what they could find in the media, to make investment decisions. However, there have been very few studies made regarding the effect of media-expressed negative tone towards next period stock returns. This study pioneers on quantifying media-expressed negative tone through content analysis and analyzing its effect on firm-level stock returns in the emerging market economies such as the Philippines. The study focuses on the top 20 companies found in the Philippines Stock Exchange (PSE) which have sufficient news coverage from the years 2006-2015. Using Random Effects Model and Rolling Window Vector Autoregression Model, the researchers were able to prove that the presence of negative tone in news adversely affect the next period stock return of all stocks observed in the study. Furthermore, the researchers examined whether these negative effects are enduring or transitory. It revealed that majority of the negative effect of negative was persistent over several periods in time. Finally, to highlight practical application of the study to investors, the researchers attempted to determine the optimal buying window for each stock that considers the time it takes to react to the negative tone implied in its own news.