Trade war, media tone and market reaction asymmetry

Purpose This study investigates the impacts of Chinese media reporting strategy (media tone) on the market performance of US-trade-intensive firms vs non-US-trade-intensive firms and the effect of media tone on the occurrence of good and bad news. Design/methodology/approach News texts were retrieved from nine major financial/economic media outlets. Lexical analysis and event study have been adopted to examine the impact of different types of news during the US–China trade frictions on Chinese firms. Findings The results show that US-trade-intensive firms vs non-US-trade-intensive firms exhibited different reactions to media coverage. US-trade-intensive firms care more about the governmental attitudes toward the trade war and potential policy supports implied in the official media reports than non-US-trade-intensive firms do. The return-chasing behavior hypothesis is supported by US-trade-intensive investors, and this effect is further enhanced when multiple releases occur on the same day. A higher media tone combined with intensified media releases significantly increases the volatilities of both US-trade-intensive and non-US-trade-intensive firms. Practical implications Information provided by this study helps the regulatory authorities to formulate measures to enhance investor confidence and better optimize resource allocation. Originality/value This study investigates the asymmetric effect of media tone on US-trade-intensive firms vs non-US-trade-intensive firms, which has not been examined, to the best of the authors’ knowledge, in the existing literature.