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Quantifying the Effect of Real Estate News on Chinese Stock Movements

Author

Listed:
  • Yan Chen
  • Zhilong Xie
  • Wenjie Zhang
  • Rong Xing
  • Qing Li

Abstract

Both traditional finance and modern behavioral finance consider that the volatility of the stock market comes from the release, dissemination and absorption of information from different views. With the rapid growth of Chinese housing prices and the public’s attention to the issue, listed firms related to Chinese real estate have come to represent one of the most important sectors in Chinese stock markets. In this study, we quantify news articles using natural language processing techniques and investigate the impact of regulatory policies and firm-specific news on real estate stocks in this active market covered by a large amount of information. Our three main findings are as follows: (1) the simple and effective quantitative measure of news emotion can be used to study the media-aware stock movements in the real estate sector of the Chinese stock market; (2) policy news leaks ahead of time, which leads to abnormal fluctuations in the stock market 14 days before the release of information, while the stock market fluctuates only slightly and briefly after the news release; and (3) news pessimism indicates downward pressure on market prices, and optimism tends to increase market prices. News-sensitive stocks perform better than other stocks, with a Sharpe ratio higher than 0.2.

Suggested Citation

  • Yan Chen & Zhilong Xie & Wenjie Zhang & Rong Xing & Qing Li, 2021. "Quantifying the Effect of Real Estate News on Chinese Stock Movements," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(15), pages 4185-4210, December.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:15:p:4185-4210
    DOI: 10.1080/1540496X.2019.1695596
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