ABSTRACT
During the COVID-19 pandemic, stock markets were fragile and sensitive to downside news regardless of whether the news was true. In China, stock rumours are increasingly rampant, affecting the sound development of the capital market. By manually gathering a sample of rumours about Chinese A-share firms, this paper studies the effects of stock market rumours and the corresponding rumour clarifications on stock returns. The study suggests that rumours rely on the information environment to persuade the market through the media effect. In terms of information disclosure, for firms that previously disclosed "negative news”, stock prices would experience abnormal drops when negative rumours appear. In terms of the media effect, rumours released by leading media cause even more significant abnormal fluctuations in stock prices. Further study shows that positive rumours significantly cause an abnormal rise in state-owned enterprises' stock prices, while negative rumours significantly cause an abnormal decline in small and medium enterprise board (SME) and growth enterprise market board (GEM) stock prices. From the perspective of the effect of clarification announcements in restraining stock price fluctuations, clear and timely clarifications are recommended.