Are Institutions Informed About News?

62 Pages Posted: 27 Jul 2014

See all articles by Terrence Hendershott

Terrence Hendershott

University of California, Berkeley - Haas School of Business

Dmitry Livdan

University of California, Berkeley

Norman Schürhoff

University of Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Date Written: July 18, 2014

Abstract

This paper combines daily non-public data on buy and sell volume by institutions from 2003 through 2005 for NYSE-listed stocks with all news announcements from Reuters. Natural language processing categorizes the sentiment associated with each news story. We use institutional order flow (buy volume minus sell volume) as a quantitative measure of net trading by institutions. We find evidence that institutional investors are informed: i) institutional trading volume predicts the occurrence of news announcements; ii) institutional order flow predicts the sentiment of the news; iii) institutional order flow predicts the stock market reaction on news announcement days; iv) institutional order flow predicts the stock market reaction on crisis news days; v) institutional order flow predicts earnings announcement surprises; and vi) institutions do not believe the hype.

Suggested Citation

Hendershott, Terrence J. and Livdan, Dmitry and Schürhoff, Norman, Are Institutions Informed About News? (July 18, 2014). Swiss Finance Institute Research Paper No. 14-49. Available at SSRN: https://ssrn.com/abstract=2468187 or http://dx.doi.org/10.2139/ssrn.2468187

Terrence J. Hendershott

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Dmitry Livdan

University of California, Berkeley ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
(510) 642-4733 (Phone)

Norman Schürhoff (Contact Author)

University of Lausanne ( email )

Extranef 228
CH-1015 Lausanne
Switzerland
+41 (0)21 692 3447 (Phone)
+41 (0)21 692 3435 (Fax)

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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