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Media sentiment and trading strategies of different types of traders

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  • Cahill, Daniel
  • Wee, Marvin
  • Yang, Joey W.

Abstract

This paper investigates how the prevailing sentiment conveyed by the media influences trading by retail and institutional traders around earnings announcements made by ASX200 constituent firms. We find that media sentiment influences institutional traders to overreact to earnings news measured by analyst forecast errors. In contrast, retail traders are indifferent to either positive or negative unexpected earnings in the presence of media sentiment. Further analysis reveals that their trading decisions are affected by media sentiment alone, independent of the earnings surprise. We also find that firm-specific media sentiment complements market-wide sentiment by providing timelier information to investors in shaping their perceptions of unexpected earnings in the Australian market.

Suggested Citation

  • Cahill, Daniel & Wee, Marvin & Yang, Joey W., 2017. "Media sentiment and trading strategies of different types of traders," Pacific-Basin Finance Journal, Elsevier, vol. 44(C), pages 160-172.
    • Handle: RePEc:eee:pacfin:v:44:y:2017:i:c:p:160-172
    DOI: 10.1016/j.pacfin.2017.07.001
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    Cited by:

    1. Prince T. Medina, 2018. "Equity Analysis in Buying Company Shares on the Philippine Stock Exchange," GATR Journals jfbr148, Global Academy of Training and Research (GATR) Enterprise.
    2. Han, Jianlei & Linnenluecke, Martina K. & Pan, Zheyao (Terry) & Smith, Tom, 2019. "The wealth effects of the announcement of the Australian carbon pricing scheme," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 399-409.

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    More about this item

    Keywords

    Media sentiment; Abnormal net purchase; Unexpected earnings; Analyst forecast error;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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