Institutional Trading around Corporate News: Evidence from Textual Analysis

81 Pages Posted: 5 Oct 2013 Last revised: 9 Jan 2019

See all articles by Alan Guoming Huang

Alan Guoming Huang

University of Waterloo

Hongping Tan

McGill University

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Date Written: January 7, 2019

Abstract

We examine institutional trading surrounding corporate news by combining a comprehensive database of newswire releases on U.S. firms with a high-frequency database of institutional trades. To more precisely identify the ability of institutions to predict or quickly interpret news, we form “news clusters” of related news that occurs in rapid succession about a particular firm. We find that institutions chiefly trade on the tone of news directly after the earliest news release in a cluster; such news-motivated trading predicts returns over the next two weeks, and accounts for 50% of the annualized intra-quarter returns documented by Puckett and Yan (2011).

Keywords: Institutional trading, Public news, Textual analysis

Suggested Citation

Huang, Alan G. and Tan, Hongping and Wermers, Russell R., Institutional Trading around Corporate News: Evidence from Textual Analysis (January 7, 2019). Robert H. Smith School Research Paper. Available at SSRN: https://ssrn.com/abstract=2336069 or http://dx.doi.org/10.2139/ssrn.2336069

Alan G. Huang (Contact Author)

University of Waterloo ( email )

School of Accounting and Finance
Waterloo, Ontario N2L 3G1
Canada
519-888 4567 ext. 36770 (Phone)

Hongping Tan

McGill University ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

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