News Momentum

41 Pages Posted: 26 Oct 2015 Last revised: 12 May 2016

Hao Jiang

Michigan State University

Sophia Zhengzi Li

Michigan State University

Hao Wang

Michigan State University; Prime Quantitative Research

Date Written: October 1, 2015

Abstract

This paper combines a comprehensive sample of intraday firm-level news arrivals with high-frequency price movements of individual stocks, thereby decomposing daily stock returns into news-driven and non-news driven components. Consistent with prior literature, we find that non-news driven return precedes a reversal. For new-driven return, however, we find strong evidence of return continuation. A strategy of news momentum that buys stocks with high news returns and sells stocks with low news returns generates an annualized return of 40.08% in the following week, with a 4-factor alpha of 40.44% controlling for the market, size, value, and momentum. This effect of news momentum is particularly pronounced for overnight and weekend news, and among small firms with less analyst coverage, higher volatility, and lower liquidity, which is consistent with imperfect investor reaction to news and limits to arbitrage.

Keywords: News, Momentum, Reversal, Underreaction, Attention, Limits to Arbitrage

JEL Classification: G02, G10, G14

Suggested Citation

Jiang, Hao and Li, Sophia Zhengzi and Wang, Hao, News Momentum (October 1, 2015). Available at SSRN: https://ssrn.com/abstract=2679614 or http://dx.doi.org/10.2139/ssrn.2679614

Hao Jiang

Michigan State University ( email )

315 Eppley Center
Department of Finance
East Lansing, MI 48824
United States

HOME PAGE: http://sites.google.com/site/haojiangfinance/

Sophia Zhengzi Li

Michigan State University ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Hao Wang (Contact Author)

Michigan State University ( email )

College of Human Medicine
East Lansing, MI 48824-1122
United States

Prime Quantitative Research ( email )

MI
United States

Paper statistics

Downloads
714
Rank
27,264
Abstract Views
2,950