The asymmetric effect of media sentiment on aggregate market and firm-level activity

This study examines the firm’s performance predictability from the behavioural perspective in the context of an emerging economy which has not been relatively addressed. We extract positive and negative news-based media sentiments using the GDELT project and a dataset consisted of aggregated market index in addition to a sample of 84 company’ return from 2005 to 2025. Further, we include a sample of 31 banks from the financial sector and about more than 400 listed companies of the nonfinancial sector of Pakistani market covering yearly observations from 2014 to 2023. Using VAR and the system Generalized Method of Moments, we discover that news-based media sentiments have a detrimental influence on future returns, return on assets, and liquidity, thereby confirming the mean reversion effect in the Pakistani market. Consequently, the asymmetric impact of news media sentiment is persistent in the presence of asset growth used as a moderating variable in our empirical analysis. Our empirical findings also reveal that investors overreact as new information arrives in the stock market thereby leads to taking the price beyond its fundamental value. Further, the empirical findings indicate that the impact of news media sentiment is significant for both the short and long horizons.