News Articles and the Invariance Hypothesis

41 Pages Posted: 16 Mar 2011 Last revised: 14 Jan 2012

See all articles by Albert S. Kyle

Albert S. Kyle

University of Maryland

Anna A. Obizhaeva

New Economic School (NES)

Nitish Ranjan Sinha

Federal Reserve Board - Capital Markets Section

Tugkan Tuzun

Board of Governors of the Federal Reserve System

Date Written: January 3, 2012

Abstract

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.

Suggested Citation

Kyle, Albert (Pete) S. and Obizhaeva, Anna A. and Sinha, Nitish Ranjan and Tuzun, Tugkan, News Articles and the Invariance Hypothesis (January 3, 2012). AFA 2012 Chicago Meetings Paper, Midwest Finance Association 2012 Annual Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1786124 or http://dx.doi.org/10.2139/ssrn.1786124

Albert (Pete) S. Kyle

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Anna A. Obizhaeva (Contact Author)

New Economic School (NES) ( email )

100A Novaya ul
Moscow, Skolkovo 143026
Russia

Nitish Ranjan Sinha

Federal Reserve Board - Capital Markets Section ( email )

20th & C. St., N.W.
Washington, DC 20551
United States

Tugkan Tuzun

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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