How news affects sectoral stock prices through earnings expectations and risk premia

Kristian Kristiansen and Anna Kirstine Hvid

No 2493, Working Paper Series from European Central Bank

Abstract: A growing body of literature analyses the impact of news on companies’ equity prices. We add to this literature by showing that the transmission channel of news to prices differs across sectors. First, we disentangle sectoral equity prices into components of expected future earnings and equity risk premia. Then, we evaluate how these react to general and sector specific sentiment shocks constructed from Reuters news articles. We find that price changes for especially the financial sector are mainly driven by changes in equity risk premia, while changes in earnings expectations play a comparatively larger role for other sectors. JEL Classification: G10, G12, G14

Keywords: dividend discount models; equity risk premia; news sentiment; stock returns; text analysis (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202493

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