First to 'Read' the News: News Analytics and High Frequency Trading

58 Pages Posted: 18 Nov 2013 Last revised: 28 Oct 2015

Bastian von Beschwitz

Board of Governors of the Federal Reserve System

Donald B. Keim

University of Pennsylvania - Wharton School

Massimo Massa

INSEAD - Finance

Date Written: October 23, 2015

Abstract

We investigate whether providers of news analytics affect the stock market. We exploit a unique identification strategy based on revisions between different product releases of a major provider of news analytics. We document a causal effect of news analytics on the market, irrespective of the informational content of the news. Coverage in news analytics speeds up the market reaction in terms of stock price response and trading volume, but temporarily increases illiquidity and can result in temporary price distortions that might increase volatility and reduce market stability. Furthermore, we document that traders learn dynamically about the precision of news analytics.

Keywords: Liquidity, Stock Price Reaction, News Analytics, Information, High Frequency Trading

JEL Classification: G10, G12, G14

Suggested Citation

von Beschwitz, Bastian and Keim, Donald B. and Massa, Massimo, First to 'Read' the News: News Analytics and High Frequency Trading (October 23, 2015). Paris December 2015 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2356547 or http://dx.doi.org/10.2139/ssrn.2356547

Bastian Von Beschwitz (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Donald B. Keim

University of Pennsylvania - Wharton School ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-7685 (Phone)
215-898-6200 (Fax)

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

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