Reaction to nonscheduled news during financial crisis: Australian evidence

Lee Smales

Applied Economics Letters, 2014, vol. 21, issue 17, 1214-1220

Abstract: News analytics software applies linguistic algorithms to newswire releases in order to assign a sentiment score; this allows users to comprehend the unstructured data flowing through newswires. I examine the market reaction of leading Australian stocks to stock-specific news flow during the financial crisis of 2007-2009. A high-frequency VAR model with GARCH effects modelled through a VECH(1,1) specification is utilized. I find a significant market impact induced by contemporaneous news items, a significant and positive relationship between volume and volatility, an increase in bid-ask spreads following periods of increased volatility, and evidence of volatility persistence.

Date: 2014
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DOI: 10.1080/13504851.2014.920465

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