Which News Moves Stock Prices? A Textual Analysis

46 Pages Posted: 26 Jan 2013

See all articles by Jacob Boudoukh

Jacob Boudoukh

Interdisciplinary Center (IDC) Herzliyah; AQR Capital Management, LLC

Ronen Feldman

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Shimon Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management; IDC Herzliya - Arison School of Business

Matthew P. Richardson

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Multiple version iconThere are 2 versions of this paper

Date Written: January 2013

Abstract

A basic tenet of financial economics is that asset prices change in response to unexpected fundamental information. Since Roll's (1988) provocative presidential address that showed little relation between stock prices and news, however, the finance literature has had limited success reversing this finding. This paper revisits this topic in a novel way. Using advancements in the area of textual analysis, we are better able to identify relevant news, both by type and by tone. Once news is correctly identified in this manner, there is considerably more evidence of a strong relationship between stock price changes and information. For example, market model R-squareds are no longer the same on news versus no news days (i.e., Roll's (1988) infamous result), but now are 16% versus 33%; variance ratios of returns on identified news versus no news days are 120% higher versus only 20% for unidentified news versus no news; and, conditional on extreme moves, stock price reversals occur on no news days, while identified news days show an opposite effect, namely a strong degree of continuation. A number of these results are strengthened further when the tone of the news is taken into account by measuring the positive/negative sentiment of the news story.

Suggested Citation

Boudoukh, Jacob and Feldman, Ronen and Kogan, Shimon and Richardson, Matthew P., Which News Moves Stock Prices? A Textual Analysis (January 2013). NBER Working Paper No. w18725. Available at SSRN: https://ssrn.com/abstract=2207241

Jacob Boudoukh (Contact Author)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Ronen Feldman

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Shimon Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel

Matthew P. Richardson

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
212-998-0349 (Phone)
212-995-4233 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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