Trade war, media tone and market reaction asymmetry

Published date08 May 2023
Date08 May 2023
Subject MatterEconomics,International economics
AuthorWenjia Zhang,Julan Du
Trade war, media tone and market
reaction asymmetry
Wenjia Zhang
School of International Economics, China Foreign Affairs University,
Beijing, China, and
Julan Du
Department of Economics, The Chinese University of Hong Kong, Hong Kong, China
Purpose This study investigates the impacts of Chinese media reporting strategy (media tone) on the
market performance of US-trade-intensive rms vs non-US-trade-intensiverms and the effect of media tone
on the occurrenceof good and bad news.
Design/methodology/approach News texts were retrievedfrom nine major nancial/economic media
outlets. Lexical analysisand event study have been adopted to examine the impact of different typesof news
during the USChinatrade frictions on Chinese rms.
Findings The results show that US-trade-intensive rms vs non-US-trade-intensive rms exhibited
different reactions to media coverage. US-trade-intensive rms care more about the governmental attitudes
toward the trade war and potential policy supports impliedin the ofcial media reports than non-US-trade-
intensive rmsdo. The return-chasing behavior hypothesis is supportedby US-trade-intensive investors, and
this effect is further enhancedwhen multiple releases occur on the same day. A higher media tone combined
with intensied mediareleases signicantly increases the volatilities of bothUS-trade-intensive and non-US-
Practical implications Information provided by this study helps the regulatory authorities to
formulatemeasures to enhance investor condence and better optimize resource allocation.
Originality/value This study investigates the asymmetric effect of media tone on US-trade-intensive
rms vs non-US-trade-intensiverms, which has not been examined, to the best of the authorsknowledge,in
the existingliterature.
Keywords ChinaUS trade war, Media tone, Trade-intensive
Paper type Research paper
1. Introduction
This study investigates theimpacts of Chinese media reporting strategy (media tone) on the
market performance of US-trade-intensive rms vs non-US-trade-intensive rms and the
effect of media tone on the occurrence of good and bad news. The trade war between China
and the USA brought great uncertainty andinstability to the world economy. Chinese direct
investment in the USA plummeted by 88%, from a peak of $46.5bn in 2016 to $5bn in
2019 [1]. Such impacts were not limited to outbound foreign direct investment (OFDI) into
the USA but spread to the domesticeconomy.
Besides, the role of trade is not only economic. In the racefor global power and inuence,
trade has replaced traditional military action at the forefront (Harding and Harding, 2019),
as shown in Trumps campaign economic policy, including a priority of eliminating
Americas chronic trade decit,particularly with China (Navarro and Ross, 2016;Heet al.,
2022)nd that the impact of this trade war on Chinas stock market is more like a system
risk caused by the contagioneffect.
Trade war
Journalof Chinese Economic and
ForeignTrade Studies
Vol.16 No. 2, 2023
pp. 153-171
© Emerald Publishing Limited
DOI 10.1108/JCEFTS-10-2022-0064
The current issue and full text archive of this journal is available on Emerald Insight at:
Given that trade can be an effectivetool used to safeguard national security and interests
in addition to traditional militaryweapons and that China faces huge challenges in the trade
war, the Chinese governmentis supposed to have a solid motivation to stabilize the economy
and market expectations.They want to convey this message to the public through the media
and convince them to stabilize their expectations(Zhang and Du, 2022). The state-controlled
media monopolize the discourseof politically sensitive events in China, and the contents and
stances of media reports typically conveythe governmental policy intention and orientation.
Although traditional newspapers, such as Peoples Daily, provide promptinformation on the
latest incidents and direct viewpoints of the government and are bound to inuence the
stock market, their effectson the stock market have been seldom investigated. Investigating
investorsreactions to media reports can, to a certain extent, show investorsacceptance of
the policy orientationtransmitted by the governments propaganda system.
All these issues enhance our interest in this study, which aims at investigating the
relationship between state-controlled media tone and Chinese stock market reactions in the
context of USChinatrade frictions.
And this study contributes to the literature in several aspects. Firstly, although studies
have examined the impact of trade war events on the stock market, few studies have
examined the impacts of media reporting strategies,especially the impacts at the rm level.
Secondly, we are the rst to differentiate rms that trade heavily with the USA from rms
without intensive trade with the USA to test the asymmetric effects of media tone.Thirdly,
we contribute to the literature by classifyingthe major events into good and bad events and
investigating the asymmetric effects of media tone on the occurrence of good and bad
events. Fourthly, the effect of news releaseintensity related to USChina trade frictions has
been examined for the rst time.
The rest of the paper proceeds as follows. Section 2 develops hypotheses based on the
related literature. Section 3 describes the methodological design and data. Section 4 reports
the empirical results and furtherdiscusses them. Section 5 concludes.
2. Literature review
So far, studies on the recent USChina trade war mainly focus on the impact of key events
on the stock market and mainly focus on the US market (Selmi, Errami, and Wohar, 2020;
Egger and Zhu, 2019, etc.). Also, some evidence has been provided on the Chinese market
(He et al.,2022;Goulard, 2020, etc.). Although there have been considerable analyses on the
market effects of the USChina trade wars, some important factors have been ignored. A
large amount of nancial research has proved that media reports, especially media tone,
affect investor sentiment and therefore signicantly impact asset pricing and corporate
nancial decisions (Tetlock, 2007;Fang and Peress, 2009; etc.). Although the news media
present themselvesas detached observers of market events, they themselvesare an integral
part of these events(Shiller, 2015). The media are a carrier of information and an
indispensableforce in shaping or changing peoples beliefs and emotions.
Chinas propaganda system has a high degree of control over the press [2]. The limited
press freedom of the state-controlledmedia and professional media outlets and the common
practice of self-censorship in the media industry enable the Chinese government to use the
media to shape public reactionsand sentiments toward major international relationsevents.
The state-controlled media monopolizethe discourse of politically sensitive events in China,
and the contents and stances of media reports typically convey the governmental policy
intention and orientation. However, its efcacy has rarely been investigated. It would be
worth exploring whether its reporting strategy contributes to market stabilization, as
claimed by Xi Jinping, the propagandaand ideological work should facilitate thefuture and

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