Media sentiment, news and liquidity of Chinese property developer stocks amidst the shadow of a mortgage crisis in China
Purpose – The study examines the relationship between news intensity, media sentiment and market
microstructure invariance-implied measures of trading activity and liquidity of Chinese property developer
stocks during the 2020–2022 Chinese property sector crisis.
Design/methodology/approach – The authors adopt the extension of the news article invariance
hypothesis, which is a generalization of the market microstructure invariance conjecture, from January 2020 to
January 2022 to test specific quantitative relationships between the arrival rate of public information, trading
activity and a nonlinear function of a proxy for the probability of informed trading. Empirical tests are based on
a dataset of 22,412 firm-day observations and two count-data models to correct for overdispersion and the
excess number of zeros. Seventy-five stocks of Chinese companies from the property development industry
(including the China Evergrande Group) were included in the sample.
Findings – The authors reject the news article invariance hypothesis but document a positive and significant
relationship between the flow of public information and risk liquidity. Additionally, the authors find that the
proxy for informed trading activity is positively related to the arrival rates of public information from October
2021 to January 2022
Originality/value – The findings support the hypothesis that negative (positive) media sentiment induces
significant deterioration (insignificant improvement) in stock liquidity. The authors find that an increase in the
number of news articles about a company corresponds to a higher liquidity of Chinese property developers’
stocks after controlling for media sentiment.