News, Corporate Network and Price Discovery
Workshop on Information in Networks (WIN), September 2011
5 Pages Posted: 28 Mar 2012
Date Written: September 12, 2011
This paper evaluates the role of a corporate network in spreading news and in particular shows how it affects prices. We build daily corporate news network using companies of the STOXX 50 index as nodes; the weights of the edges are the number of news items sharing common topics between companies. The STOXX 50 includes the top 50 European companies by level of capitalization.
We conducted a longitudinal network analysis using the stochastic actor oriented model with daily prices and news for March 2009. We found that there was a 0.55 correlation between the rate of change of the news network and the STOXX 50 index. Even though, the network dynamic by itself cannot fully explain price movements, it can play an important role as part of a predictive model.
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