Stock Returns: Nepalese Investors’ Reactions to News Coverage

Abstract

This study is motivated by the fact that investing in dissimilar financial markets may help risk reduction through global diversification. This study shows that the behavior of the Nepalese and the US stock markets are dissimilar. We analyze the effects of news in Nepal employing the descriptive and causal-comparative research designs and the content analysis (manual) approach. Based on the words and phrases used in newspaper headings, ‘news’ is classified into ‘bad,’ ‘good’ and ‘informational.’ Regression models are used to find relationship between news and stock returns. The study finds a negative effect of ‘bad’ news, a positive effect of ‘good’ news, and an inconsistent effect of ‘informational’ news on stock returns. ‘Bad’ news seems to impact market returns more strongly. This study contributes to the existent literature in three ways by providing: a comprehensive overview of the Nepalese stock market; an extensive literature review related to ‘news;’ and an insight on the behavior of Nepalese investors.