Does Public Financial News Resolve Asymmetric Information?

Review of Financial Studies, Vol. 23, No. 9, pp. 3520-3557, 2010

52 Pages Posted: 27 Oct 2011

See all articles by Paul C. Tetlock

Paul C. Tetlock

Columbia Business School - Finance

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 post news 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.

Suggested Citation

Tetlock, Paul C., Does Public Financial News Resolve Asymmetric Information? (April 1, 2010). Review of Financial Studies, Vol. 23, No. 9, pp. 3520-3557, 2010, Available at SSRN: https://ssrn.com/abstract=1949381

Paul C. Tetlock (Contact Author)

Columbia Business School - Finance ( email )

3022 Broadway
New York, NY 10027
United States

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

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