The Tone of Financial News and the Perceptions of Stock and CDS Traders

44 Pages Posted: 9 Apr 2014 Last revised: 4 Jul 2018

See all articles by Michael Liebmann

Michael Liebmann

University of Freiburg (Germany)

Alexei G. Orlov

Securities and Exchange Commission

Dirk Neumann

University of Freiburg

Date Written: March 21, 2016

Abstract

This paper applies novel sentiment analyses to Reuters news to study stock and CDS traders' differential interpretations of financial news. We construct sentiment measures to identify which news content influences investors' behavior and create dynamic word lists that reflect the divergent viewpoints of CDS and equity investors. We find that (1) equity and CDS traders focus on different content within the same news; (2) traders particularly disagree with respect to news concerning debt topics, especially regarding M&A activity; (3) the Great Recession impacted debt news content and altered the typical inverse relationship between equity and CDS markets on news days.

Keywords: News content analysis, sentiment analysis, financial news, investor perception, the Great Recession, news anticipation, post-announcement drift, semi-strong market efficiency

JEL Classification: G12, G14

Suggested Citation

Liebmann, Michael and Orlov, Alexei G. and Neumann, Dirk, The Tone of Financial News and the Perceptions of Stock and CDS Traders (March 21, 2016). Available at SSRN: https://ssrn.com/abstract=2422516 or http://dx.doi.org/10.2139/ssrn.2422516

Michael Liebmann

University of Freiburg (Germany) ( email )

Albert-Ludwigs-Universität Freiburg, Wirtscha.inf.
Kollegiengebäude II, Platz der Alten Synagoge
Freiburg im Breisgau, 79098
Germany
+49-177-321-2626 (Phone)

HOME PAGE: http://www.is.uni-freiburg.de/mitarbeiter/team/michael-liebmann

Alexei G. Orlov (Contact Author)

Securities and Exchange Commission ( email )

100 F Street NE
Washington, DC 20549
United States

Dirk Neumann

University of Freiburg ( email )

Albert-Ludwigs-Universität Freiburg, Wirtscha.inf.
Kollegiengebäude II, Platz der Alten Synagoge
Freiburg im Breisgau, 79098
Germany

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