Does Public Financial News Resolve Asymmetric Information?

52 Pages Posted: 21 Nov 2008 Last revised: 30 Aug 2011

Paul C. Tetlock

Columbia Business School - Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2010

Abstract

I use uniquely comprehensive data on financial news events to test four predictions from an asymmetric information model of a firm's stock price. Certain investors trade on information before it becomes public; then, public news levels the playing field for other investors, increasing their willingness to accommodate a persistent liquidity shock. Empirically, I measure public information using firms' stock returns on news days in the Dow Jones archive. I find four patterns in postnews returns and trading volume that are consistent with the asymmetric information model's predictions. Some evidence is, moreover, inconsistent with alternative theories in which traders interpret news differently for rational or behavioral reasons.

Keywords: media coverage, news, asymmetric information, liquidity, return momentum, return reversal

JEL Classification: G14, D82

Suggested Citation

Tetlock, Paul C., Does Public Financial News Resolve Asymmetric Information? (April 1, 2010). AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1303612 or http://dx.doi.org/10.2139/ssrn.1303612

Paul C. Tetlock (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
212-854-9895 (Fax)

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ptetlock/

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