News Articles and the Invariance Hypothesis
Albert S. Kyle
University of Maryland; National Bureau of Economic Research (NBER)
Anna A. Obizhaeva
University of Maryland - Robert H. Smith School of Business
Nitish Ranjan Sinha
University of Illinois at Chicago
Federal Reserve Board
January 3, 2012
AFA 2012 Chicago Meetings Paper
Midwest Finance Association 2012 Annual Meetings Paper
Using a database of news articles from Thomson Reuters for 2003-2008, we investigate how the arrival rate of news articles mentioning an individual stock varies with the level of trading activity in that stock. Defining trading activity W as the product of dollar volume and volatility, we estimate that the arrival rate of news articles is proportional to W0:68. Market microstructure invariance predicts that the stock trading process unfolds in “business time” which passes at a rate proportional to W2=3. Since the estimated exponent of '368 is close to 2/3, we conclude that information in news articles flows into the market in the same units of business time that microstructure invariance predicts to govern the trading process for stocks. The arrival of news articles is well approximated by a negative binomial process with the over-dispersion parameter of 2.11.
Number of Pages in PDF File: 41working papers series
Date posted: March 16, 2011 ; Last revised: January 14, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.422 seconds