Information Role Of Financial Media In China Capital Market

Financial media coverage is the main information source of investors.Does the media coverage reflect the fundamentals of the company and can the investor make decisions according to media coverage?As well as the information provided by the media could be incorporated in the stock prices?Furthermore,will the information role of media coverage be different in different stages of capital market?We will answer these questions by implementing content analysis method.We illustrate the theoretical support of information role of media in the capital market.Firstly,information asymmetry does exist in capital market.Although there are many mechanism's to alleviate information asymmetry,such as information disclosure mechanism and information serving institution in capital market,the fact is that they could not effectively solve the information asymmetry between management of company and the outside investors.Financial media could collect,product and transfer information as well as supervise pubic opinion and strengthen supervision of the public company,as a result,information asymmetry is expected to be alleviated due to media coverage.Secondly,in the market of incomplete information,the investors can not focus on all the securities while financial media could transfer information to more scope of investors at lower cost,consequently the scope of recognition of investor is broaden and the attention of investor is captured.Thirdly,information role of financial media will be different for different level of investor protection.When the capital market is well developed,the standard investor protection mechanism will protect investors well and the information asymmetry is relatively lower,so the investors will not depend on financial media greatly.While the standard investor protection mechanism does not work well,as a substitution mechanism,financial media is expected to provide valuable information and alleviate information asymmetry and broaden the scope of investor recognition.Based on the analysis of theory,we summarized the literature of information role of media coverage and provide idea and methods of study for the forthcoming empirical analysis of whether media coverage providing fundamental information as well as these information incorporated in the stock prices.The first question is whether the media coverage in both capital markets provides fundamental information.Based on the practice that the cross-listing of Chinese company in A share and H share market,we analyzed the information role of financial media in both markets.The result shows that the ratio of negative words in the financial media coverage in both markets could predict future earning,which proved that financial media coverage in both markets provides fundamental information.The optimistic conclusion seems beyond our intuition.Further study shows that media in A share market has geographic proximity information advantage and offsets some disadvantage of maturity of market.The second question is whether the information of media coverage could be incorporated in the stock prices through the behavior of investors.Many researchers use stock price synchronization to measure the amount of firm-specific information in the stock prices.The results shows that as the increase of the media coverage,the stock price synchronization tends to decline for the A share market while it is not so for the H share.The reason could be the difference of level of investor protection for these two markets.The A share market is under developed and the individual investors depend on the information of media coverage,as a result,the more media coverage,the more firm-specific information will be incorporated into the stock prices for A share market.We concluded that media coverage in A share market could provide fundamental value and when there are more media coverage,the more firm-specific information will be incorporated into stock prices in A share market based on the theoretical and empirical analysis.To improve the efficiency of capital market,financial media must be put into an important position.