Research On The Media Effect Of The Chinese Stock Market

The stock market is driven by information, capital and investor sentiment, and theinformation is the basis of investment decisions. This paper creatively divideinformation into two categories--"hard" and "soft". The “hard information” refers tocompanies’ fundamental information which is mandatory disclosed. The "softinformation" covers all media delivery information which is usually non-standardizedwritten announcement. In Chinese stock market, most individual investors rely on softinformation due to their limitations of expertise.Since the world has entered the age of the Internet, finance celebrity real-nameauthentication micro blogging, blog, share it, BBS and others provide convenient forChina’s A-share listed company disclosure of soft information. The media timely andeffective reports can effectively eliminate the problem of information asymmetrybetween investors. However, so much kinds of “soft” information explode aroundindividual investors every day. Due to their widespread cognitive deviation and limitedattention, investors always make irrational investment decisions, which finally causeirrational fluctuation of stock price. This phenomenon is called "media attention effect",which is still full of securities market in china."media attention effect" has become amore and more research hotspot in the field of behavioral finance and this paper willalso discuss it.Three aspects will be studied:First, discuss the relationship between media attention effect and the stock pricefrom the theoretical aspects. This will include review of investor’s limited attention,cognitive biases and bounded rationality. Based on the theory of cognitive psychologywhich is the core of behavioral finance, this paper will discuss investors’ limitedattention in the process of access to information. In addition, because in the informationexplosion age, most stock investors in china are individual investors which are usuallylack of professional financial knowledge, and have cognitive biases and mentaldeviations, they are more vulnerable to the impact of media publicity and marketsentiment. Thus, the conclusion is bounded rationality of investors is widespread inChinese share market, which also provides theoretical foundation to the analysis ofresults of the empirical analysis. Second, test the negative media attention effect using empirical analysis. Thispaper uses the event study method and the release of unexpected negative softinformation from media is the event. Investors’ abnormal returns before and after therelease day would be contrasted to show the irrational market response. Then T testimprove the presence of negative media attention effect in A-share market in China.T-test results show that, the company which has negative news, exhibit significantnegative cumulative excess return during the period of the event.In the definition of "media attention", this paper uses the Chinese capital securitiesonline attention ranking and the number of authoritative websites reproduced statisticsas a measure of investor attention. The empirical analysis results shows that the stockswhich have high attention rank are the stocks with significant high price volatility. Thisresult is, successful verified the existence of the investors’ limited attention.Third, the case study shows that in real life, there is a lot of false negative softinformation spread through media such as the micro-blogging, share it which seriouslymislead investors’ decision-making, and cause irrational price fluctuation of stock.These false negative soft information greatly damaged the interest of small and mediuminvestors. Therefore, this paper presents some suggestions from three aspects to relevantfunctional departments: improvement of legislation to increase the punishment,strengthen self-regulation of media and improve supervises.