The Stock Market’s Response to the Political Affiliation of News Sources
We use the acquisition of Dow Jones & Co. by News Corporation in 2007 to study whether investors respond to a news source’s political affiliation. Following the acquisition, the price of Republican- (Democrat-) aligned stocks becomes less sensitive to favorable (unfavorable) Dow Jones Newswires (DJNW) sentiment, consistent with the market attaching less credibility to a politically affiliated source. There is, however, no evidence of change in DJNW sentiment, coverage, or language about Republican/Democrat stocks, suggesting a loss of price informativeness. Consistent with this view, a portfolio exploiting the attenuated reaction to DJNW news earns abnormal returns following 2007.
Co-Author(s): Mancy Luo (Erasmus RSM), Massimo Massa (Insead)