Media Sentiment on Foreign Countries and International Asset Allocation

We examine whether U.S. media sentiment on foreign countries influences domestic investors’ international asset allocation. Using flows to country-specific mutual funds as a proxy for investor demand, we find that negative media sentiment, measured by the interaction of negative tone and media attention given to foreign countries, is strongly associated with reduced investor flows into funds targeting those countries. This relationship is driven, at least in part, by media sentiment that is unrelated to the economic fundamentals of the targeted countries. We employ The Wall Street Journal’s acquisition by News Corp to support the causal interpretation of our findings. Our results highlight the perception-shaping role of media narratives in driving global investment decisions. This paper was accepted by Will Cong, finance. Funding: L. Ma acknowledges funding support from the National Natural Science Foundation of China [Grant 72103008]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.05504 .