News on stock price

1. 1
The Stock Market Behavior on News and a Comparison
with S&P 500
- Sudarshan Kadariya, New York
The Stock market is the very sensitive mechanism by its nature, various catalysts – tangible and
intangible information have been influencing the stock market performances. The tangible
information represents the information available in numbers like EPS, dividend, book value, cash
flow, etc and intangibles are news, media coverage, market behavior, investor behavior,
psychology, values, sentiments, over/under reactions, etc. Collectively, total returns can be
classified into two parts, tangible information contributes as tangible returns and intangible
information contributes as intangible returns.
These are the universal features of the stock market and have been equally affecting all stocks
and every market in the world. We, Nepse, even though perform in isolation due to almost entire
domestic investment/investors in comparison with other markets; the effects of news and media
coverage have the same. Most of the time, the good news helps to advance the indices and bad
news inversely reduce the markets indices.
If we would have international investors or our companies would have been investing in external
economies, the market performance of Nepse would be different and challenging. On the other
hands, all stakeholders including regulators must perform far better roles than what we have
now. The general understanding is that if we face the challenges then we would have
opportunities to handle and develop the measures to cope the challenges which is in line with the
proverb “Necessity is the mother of invention” i.e. the primary driving force for new inventions
is a need.
Even though the stock market operation has completed two decades in Nepal, we are just trying
to upgrade from the early stage of development. The advanced technologies have given
opportunities of information in our figure tips. The organized and coordinated efforts would take
the benefits of the changing world so that we would feature our market with the leading capital
markets in the world. The advancement is possible only if the regulators felt the need of the
improvements and only if they take a resinous lead. In such circumstances, we are working with
hopes and waiting for the major initiatives in the market. The fully automated online trading

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platform, if implemented successfully by next year it would be a milestone in the history of the
stock market in Nepal.
Disclosure of Research Findings:
We analyze the news coverage and the market reactions for the period January 13, 1994, to July
15, 2010, total 6029 days. The movements of the stock market indices are the replications of
investors and their investment behavior. Using the content analysis approach on news headings,
a total of 1683 news headings related to Nepalese Stock Exchange are collected from the
national daily newspaper “Kantipur” and classified them into ‘bad’ news, ‘good’ news and
‘informational’ news. There are total - 536 bad news, 734 good news, and 413 informational
news during the period. The summary details are presented in the table below.
Date Year
TTL
News
Bad
News
Good
News
Info.
News
Avg.
Index
Mid. July
Index
Friday, July 15, 1994 1994 30 1 6 23 209.41 209.41
Saturday, July 15, 1995 1995 33 8 3 22 195.48 195.48
Monday, July 15, 1996 1996 50 14 14 22 185.61 185.61
Tuesday, July 15, 1997 1997 51 26 10 15 192.50 192.50
Wednesday, July 15, 1998 1998 50 12 12 26 177.93 163.35
Friday, July 16, 1999 1999 62 9 22 31 190.14 216.92
Saturday, July 15, 2000 2000 75 16 38 21 288.81 360.70
Sunday, July 15, 2001 2001 84 25 39 20 354.57 348.43
Tuesday, July 16, 2002 2002 107 39 40 28 287.99 227.54
Wednesday, July 16, 2003 2003 97 34 44 19 216.20 204.86
Thursday, July 15, 2004 2004 74 30 32 12 213.45 222.04
Friday, July 15, 2005 2005 70 17 40 13 254.36 286.67
Sunday, July 16, 2006 2006 93 19 48 26 336.75 386.83
Monday, July 16, 2007 2007 172 48 105 19 535.39 683.95
Tuesday, July 15, 2008 2008 260 83 129 48 823.66 963.36
Wednesday, July 15, 2009 2009 182 73 76 33 856.23 749.10
Friday, July 16, 2010 2010 193 82 76 35 613.41 477.73
Total 1683 536 734 413
Percent 32% 44% 25%
(The author would like to encourage interested individual/group to continue this research to date)
Consistent with the earlier studies in other countries, we find that in Nepal too, there is a
negative effect of bad news, a positive effect of good news, and an inconsistent effect of

3. 3
informational news on stock returns. It shows the investors’ nature seems to be similar around
the world. However, it also shows that the bad news seems to have a slightly stronger impact in
the market comparison with good news.
Some studies on the topic for the reference are below:
Greater information uncertainty produce relatively higher expected returns following good news
and relatively lower expected returns following bad news (Zhang (2006))
Media coverage, public relations and other investor marketing activities could play an important
causal role in creating and sustaining speculative bubbles and fads among investors (Merton
(1987))
High levels of media pessimism robustly predict downward pressure on market prices. Second,
unusually high or low values of media pessimism forecast high market trading volume. Third,
low market returns lead to high media pessimism (Tetlock (2007))
High-media coverage stocks earn lower returns (Fang and Peress (2009))
Number of news stories and market activity are directly related (Mitchell and Mulherin (1994))
Market timing is an important aspect of real financing decisions (Baker and Wurgler (2002))
There is correlation of asset returns with the overreaction of prices to news, price bubbles, and
expectations (De Long, et al (1990))
In a different analysis, it shows considerable differences in the behavior of Nepali stock market
as compared to Standard & Poor’s 500 Index (S&P 500). S&P 500 is a stock market index of
largest 500 US-listed companies by market capitalization. It is considered as one of the most
important market indexes in the United States.
The graph below shows the spread (the range) of market indices for the period 1994 July to 2015
July. Stock indices are shown in y-axis and time (year) in x-axis. The spikes in the figure
indicate the range (minimum to maximum) of the indices each year.
Yearly Spread of NEPSE
0
200
400
600
800
1000
1200
1400
1990 1995 2000 2005 2010 2015 2020

4. 4
Source: NEPSE annual & monthly reports 1994 to 2015
Yearly Spread of S&P 500
Source: www.cboe.com/.../dailypricehistory.xls
In 2007 followed by 2008 are the largest index spreads in Nepse with upward slopping whereas
S&P 500 index in 2008 has the largest index spread but it is a downward slopping corresponding
to the financial crisis in the USA which was continued till 2009. The Nepalese financial market
swung upward and reached its highest level of the period in 2008 while S&P 500 index was
diving into historic fall. By this comparison, it can be seen that the behavior of the Nepalese
stock market can be considered quite different from the S&P 500. It also shows that the bull
sentiments in Nepse have short lives than S&P 500 which is continuously maintaining its bull
sentiments after 2009. Thus, it would appear that the Nepse can be analyzed by completely
isolating from the other financial markets in the world.
The differences in behavior of the Nepalese stock market as compared to the S&P 500 can be of
considerable interest to the investors who look for dissimilar financial markets, especially if the
market index exhibit different return patterns, around the world since the same would help in risk
reduction through global diversification. Also, it would be a great opportunity for Non-Resident
Nepalese living in around the globe.
(*The author is a Gold medalist from TU for the courses of M. Phil in Management with
specialization in Finance in 2012. Now, he is working as a Assistant Manager - Finance in a
consulting firm in New York. The opinion presented in the article is personal. You can reach to
the author at su.kadariya@gmail.com)
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1990 1995 2000 2005 2010 2015 2020

5. 5
Graphical Presentation on News Counts
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200
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1994
1995
1996
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2010
Index
Average & Mid. July NEPSE Index with News Categories
TTL
News
Bad
News
Good
News
Info.
News
Avg.
Index
Mid. July
Index
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1994
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NewsCounts
News Categories by Year
TTL
News
Bad
News
Good
News
Info.
News
0
500
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2000
1994
1995
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1997
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2010
Index
NEPSE Index by Year
Mid. July
Index
Avg.
Index