Are Institutions Informed About News?

Terrence Hendershott, Dmitry Livdan and Norman Schuerhoff
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Terrence Hendershott: University of California, Berkley

No 14-49, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper combines daily non-public data on buy and sell volume by institutions from 2003 through 2005 for NYSE-listed stocks with all news announcements from Reuters. Natural language processing categorizes the sentiment associated with each news story. We use institutional order flow (buy volume minus sell volume) as a quantitative measure of net trading by institutions. We find evidence that institutional investors are informed: i) institutional trading volume predicts the occurrence of news announcements; ii) institutional order flow predicts the sentiment of the news; iii) institutional order flow predicts the stock market reaction on news announcement days; iv) institutional order flow predicts the stock market reaction on crisis news days; v) institutional order flow predicts earnings announcement surprises; and vi) institutions do not believe the hype.

Pages: 62 pages
Date: 2014-07
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Citations: View citations in EconPapers (2)

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Journal Article: Are institutions informed about news? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1449

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