Institutional Trading around Corporate News: Evidence from Textual Analysis

65 Pages Posted: 5 Oct 2013 Last revised: 5 Dec 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; European Corporate Governance Institute (ECGI)

Date Written: December 3, 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 identify the ability of institutions to predict or quickly interpret news, we form “news clusters” of related news about a particular firm that occurs in rapid succession. We find that institutions chiefly trade on the tone of news directly after the earliest news release in a cluster, and such news-motivated trading predicts returns over the following weeks. Our results suggest that institutional investors contribute to price efficiency by the speedy interpretation of public information.

Keywords: Institutional trading, Public news, Textual analysis

JEL Classification: G11, G12, G14, G23, G39

Suggested Citation

Huang, Alan G. and Tan, Hongping and Wermers, Russell R., Institutional Trading around Corporate News: Evidence from Textual Analysis (December 3, 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/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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