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Macro News, Micro News, and Stock Prices
University of British Columbia
I investigate interactions between macro-news announcements and the processing of earnings news. Theoretically, macro-news can either improve or impede the processing of earnings news. I find that macro-news enhances the efficiency of market reactions to earnings news: the immediate price reaction is 17% stronger and the post-earnings announcement drift is 71% weaker. The results are strongly related to institutional investors’ attention and are not be explained by risk, or liquidity. Overall, this paper provides novel evidence that the market is more efficient on macro-news days and that investors not only allocate attention across information, but also across time.
Front Page News: The Effect of News Consumption on Financial Markets
This paper offers a direct test of the causal link between attention to news and market dynamics, using quasi-random variation in positioning of news articles on the Bloomberg terminal. I exploit the existence of a category of news articles, some of which are upgraded to the prominent "front page" positions at the top of the news screen in a process independent of their content. This offers a natural experiment in positioning between the articles that make it to the front page and those that do not, allowing me to estimate the causal effect of persistent attention to news, holding news importance constant. I find that placing a news article on the front page leads to 280% higher trading volumes and 180% larger price changes within the first ten minutes after publication. These articles also see a much stronger short-term price drift, with 21% higher serial correlation in returns at the five-minute level. The effect persists for 1-2 hours after the news, but is strongest during the first 30-45 minutes. A comparison against differential reactions following news articles of varying editorial importance indicates that news positioning plays an even stronger role in driving market activity than news importance.
The Price of News Arrivals: Evidence from Equity Options
University of Toronto
It is well-known that individual stock returns often exhibit large discrete movements, or jumps. In addition, it is documented that jump risk is necessary to explain observed equity options prices. However, very little is known about the source of jumps and its premium, perhaps due to the latent nature of jumps. I propose to identify jumps using a comprehensive news dataset from Factiva. This enables me to model the time-varying probability of jumps and it allows me to impose flexible risk premiums showing how the uncertainty of news arrivals is priced. When estimating a continuous-time stochastic volatility jump diffusion model on individual equity options with news arrivals driving the jump dynamics, I find that (1) the arrival of news itself is positively priced and (2) the size of jumps due to news arrival carries a significantly negative risk premium. The results are consistent with previous theories highlighting both positive and negative effects of public news arrival.
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Conference: EFA 2017
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