20 Pages Posted: 3 Nov 2011
Date Written: June 7, 2011
There are two information revolutions underway in trading and investing. Most of the headlines focus on structured quantitative market information at ever higher frequencies. The other technology revolution in trading and investing is driven by qualitative, textual and relationship information. The IBM computer Watson’s overwhelming Jeopardy victory demonstrated how good machines can get at this. News analysis is a focus of language technology in finance. This paper includes event studies and US portfolio simulation results are shown for “pure news” signals applied over 2006-2009, and a true out of sample period in 2010, which showed alpha in excess of 10%/year. Other applications of automated qualitative analysis for information-driven social media client relations are described.
Keywords: Market Efficiency, News Media, Qualitative Information, Language, Event Trading, NLP, public news, media coverage, stale information, overreaction, return reversal
JEL Classification: G12, G14, M41
Suggested Citation: Suggested Citation
Leinweber, David and Sisk, Jacob, Event Driven Trading and the 'New News' (June 7, 2011). Journal of Portfolio Management, Vol. 38, No. 1, 2011. Available at SSRN: https://ssrn.com/abstract=1952914
By Andrew Ang