First to \"Read\" the News: New Analytics and Algorithmic Trading

Donald Keim (), Massimo Massa and Bastian von Beschwitz
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Bastian von Beschwitz: https://www.federalreserve.gov/econres/bastian-von-beschwitz.htm

No 1233, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Exploiting a unique identification strategy based on inaccurate news analytics, we document a causal effect of news analytics on the market irrespective of the informational content of the news. We show that news analytics speed up the stock price and trading volume response to articles, but reduce liquidity. Inaccurate news analytics lead to small price distortions that are corrected quickly. The market impact of news analytics is greatest for press releases, which are timelier and easier to interpret algorithmically. Furthermore, we provide evidence that high frequency traders rely on the information from news analytics for directional trading on company-specific news.

Keywords: Stock Price Reaction; News Analytics; High Frequency Trading; Press Releases (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2018-07
New Economics Papers: this item is included in nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1233

DOI: 10.17016/IFDP.2018.1233

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