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13.01.2023

What do we Learn from a Machine Understanding News Content? Stock Market Reaction to News

Published 

13 January, 2023

> 10 minutes
13.01.2023
What do we Learn from a Machine Understanding News Content? Stock Market Reaction to News
Published 

13 January, 2023

> 10 minutes

Abstract


Using textual data extracted by Causality Link platform from a large variety of news sources (news stories, call transcripts, broker research, etc.), we build aggregate news signals that take into account the tone, the tense and the prominence of various news statements about a given firm. We test the informational content of these signals and examine how news is incorporated into stock prices. Our sample covers 1,701,789 news-based signals that were built on 4,460 US stocks over the period January 2014 to December 2021. We document large and significant market reactions around the publication of news, with some evidence of return predictability at short horizons. News about the future drives much larger reactions than news about the present or the past. Stock returns also react more to high-coverage news, fresh news and purely financial news. Finally, firms’ size matters: stocks that are not components of the Russell 1000 index experience larger reactions to news compared to those that are Russell 1000 components. Implications of our results for financial analysts and investors are offered and related to the links between news, firms’ market value and investment strategies.

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This website is solely for informational purposes.
 
This website does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service. Any securities, products, or services referenced may not be registered for sale with the relevant authority in your jurisdiction and may not be regulated or supervised by any governmental or similar authority in your jurisdiction.
 
Furthermore, nothing in this website is intended to provide tax, legal, or investment advice and nothing in this website should be construed as a recommendation to buy, sell, or hold any investment or security or to engage in any investment strategy or transaction. There is no guarantee that any targeted performance or forecast will be achieved.

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