Time Variation in the News–Returns Relationship

Paul Glasserman, Fulin Li and Harry Mamaysky

Journal of Financial and Quantitative Analysis, 2025, vol. 60, issue 1, 258-294

Abstract: The speed of stock price reaction to news exhibits substantial time variation. Higher risk-bearing capacity of financial intermediaries, lower passive ownership of stocks, and more informative news increase price responses to contemporaneous news; surprisingly, these interaction variables also increase price responses to lagged news (underreaction). A simple model with limited attention and three investor types (institutional, noninstitutional, and passive) predicts the observed variation in news responses. A long–short trading strategy based on news sentiment earns high returns, which increase when conditioning on the interaction variables. The interactions we document are robust to the choice of news source.

Date: 2025
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