Proceedings of 8th Asian Business Research Conference
1 - 2 April 2013, Bangkok, Thailand, ISBN: 978-1-922069-20-7
The News Effect and Asset Pricing In Taiwan Stock Market
Yang-Cheng Lu, Yu-Chen Wei and Hsiao-Ting Lin
This study investigates the relationship between the news effect and the abnormal
returns. The content analysis is applied to quantify the public news related to the listed
stocks in the Taiwan Stock Market. By referring to Demers and Vega (2011), this
study constructs the net optimism of public news (SR) and considers the SR as the
proxy variable of news effect. The study samples are the listed stocks in the Taiwan
Stock Exchange for the period from January 2004 through December 2012. The
portfolios are established by sorting the SR and the news effect is measured by the
high portfolio SR minus the low portfolio SR. By following the methodology of
Florackis, Gregoriou and Kostakis (2011), we estimate the abnormal returns of SR
portfolios by using the asset pricing models that involve the single-factor model of
Black, Jensen and Scholes (1972), three-factor model of Fama and French (1993) and
the four-factor model of Carhart (1997). The empirical results show that there is a
significant positive relationship between the net optimism of public news (SR) and the
abnormal returns. The strategy of positive excess returns could be generated by
buying stocks with high SR and shorting stocks with low SR. In addition, the two-stage
regression analysis of Fama and MacBeth (1973) is applied to examine whether the
news effect could explain the portfolios abnormal returns in the Taiwan Stock Market.
The empirical results show that the news effect extracted from the public information
could increase the explanatory of abnormal returns. The public news could explain the
anomalies in the financial theories if it is investigated properly which is consistent to
the studies of Vega (2006)、Tetlock (2007)、Tetlock, Saar-Tsechansky and
Macskassy (2008) and Demers and Vega(2011).
JEL Classification：G11,G12, and G14
_________________________________________________________
Yang-Cheng Lu, Ming Chuan University, Taipei, Taiwan.
Yu-Chen Wei, National Kaohsiung First University of Science and Technology, Taiwan.
Hsiao-Ting Lin, National Kaohsiung First University of Science and Technology, Taiwan.