Political speeches and stock market performance: Evidence from China

This study investigates how political speeches influence investor behavior, focusing on speeches about the real estate market delivered between 2005 and 2013 by Wen Jiabao, the former Premier of China. It examines how Wen’s public statements—opinions expressed without specific policy details—affected the stock performance of real estate firms listed on the mainland Chinese stock market. Event study results show that these speeches significantly affect stock performance, with stock prices rising 7.53% above normal levels and trading volumes surging. In contrast, the same speeches had no discernible impact on the stock performance of mainland housing firms listed on the Hong Kong Stock Exchange, despite their substantial revenue from the mainland market. This divergence cannot be explained by differences in information availability, investor composition or firm characteristics. Rather, evidence supports that it stems from different belief updating processes: mainland investors assign high predictive value to political rhetoric, while Hong Kong investors, conditioned by their distinct institutional experiences, discount such speeches as weak predictors of actual policy implementation. The findings underscore the critical role of local investors’ perceptions, shaped by cultural and institutional contexts, in shaping market responses to political rhetoric.