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Media Coverage and Stock Market Returns: Evidence from China Pakistan Economic Corridor (CPEC)

This paper aims to analyze the print media coverage of the China Pakistan Economic Corridor (CPEC) to trace the changes in investor positive and negative market attentions and their impact on stock market returns. We access the daily and weekly coverage of CPEC by national and international newspapers from the Bloomberg database over the period from 2015 to 2018. Using the Harvard psychological dictionary, we categorize the news headlines into two categories such as; news with positive sentiments and news with negative sentiment. We then relate the positive and negative news sentiment to the stock market returns, using quintile analysis, OLS, and VAR models. The results show that investors react quickly and significantly to positive news. They pay more for the same stock if the positive news stream increases and hence the stock market return also increases. In contrast, the investors do not react with the same passion to increase in negative news. These findings are in line with the theoretical rationale of the disposition effect. The study presents empirical evidence on the spillover effect of print media coverage on stock market returns with respect to the China-Pakistan Economic Corridor (CPEC) which is considered a game-changer for the economy of Pakistan. Moreover, this study presents novel evidence that investors react quickly and significantly to the positive news whereas, to the negative news they react passively.