Institutional Trading around Corporate News: Evidence from Textual Analysis
81 Pages Posted: 5 Oct 2013 Last revised: 9 Jan 2019
Date Written: January 7, 2019
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
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