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Beyond the Fundamentals: How Media-Driven Narratives Influence Cross-Border Capital Flows

Author

Listed:
  • Agarwal, Isha

    (University of British Columbia)

  • Chen, Wentong

    (Cornell University)

  • Prasad, Eswar

    (Cornell University)

Abstract

We provide the first empirical evidence on how media-driven narratives influence cross-border institutional investment flows. Applying natural language processing techniques to one-and-a-half million newspaper articles, we document substantial cross-country variation in sentiment and risk indices constructed from domestic media narratives about China in 15 countries. These narratives significantly affect portfolio flows, even after controlling for macroeconomic and financial fundamentals. This impact is smaller for investors with greater familiarity or private information about China and larger during periods of heightened uncertainty. Political and environmental narratives are as influential as economic narratives. Investors react more sharply to negative narratives than positive ones.

Suggested Citation

  • Agarwal, Isha & Chen, Wentong & Prasad, Eswar, 2024. "Beyond the Fundamentals: How Media-Driven Narratives Influence Cross-Border Capital Flows," IZA Discussion Papers 17442, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp17442
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    References listed on IDEAS

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    1. Baker, Scott R. & Bloom, Nicholas & Davis, Steven J. & Sammo, Marco C., 2021. "What triggers stock market jumps?," LSE Research Online Documents on Economics 113913, London School of Economics and Political Science, LSE Library.
    2. Ahmed, Shaghil & Zlate, Andrei, 2014. "Capital flows to emerging market economies: A brave new world?," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 221-248.
    3. Karolyi, G. Andrew & Ng, David T. & Prasad, Eswar S., 2020. "The Coming Wave: Where Do Emerging Market Investors Put Their Money?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(4), pages 1369-1414, June.
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    Cited by:

    1. Liu, Ling & Gozgor, Giray & Mahalik, Mantu Kumar & Pal, Shreya, 2025. "The impact of the US-China tensions on FDI dynamics in emerging economies," Finance Research Letters, Elsevier, vol. 78(C).

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    Keywords

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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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