Corporate news releases and the profitability of retail trades

61 Pages Posted: 1 Feb 2017 Last revised: 9 Jan 2019

See all articles by Ferhat Akbas

Ferhat Akbas

University of Illinois at Chicago

Musa Subasi

University of Maryland-College Park - Robert H. Smith School of Business

Date Written: January 1, 2019

Abstract

Combining a large archive of public corporate news events with retail trading records from NYSE, we examine whether and how news releases affect the informedness of individual investors. We find a significantly positive relationship between retail order imbalance on days with positive news sentiment and future stock returns. The predictive ability of retail order imbalance is more pronounced on both neutral news and positive news days during times of elevated market uncertainty and across a broad spectrum of corporate news categories such as corporate business activities, financial results and analysis, domestic politics, and international trade. We consider a multitude of explanations (e.g., news processing skills, news anticipation, liquidity provision, investor attention, changes in liquidity) and conclude that the argument that is most compatible with our findings is that individual investors in our sample are skilled at interpreting news.

Keywords: Individual Investors; Information Processing; Public News

Suggested Citation

Akbas, Ferhat and Subasi, Musa, Corporate news releases and the profitability of retail trades (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=2907706 or http://dx.doi.org/10.2139/ssrn.2907706

Ferhat Akbas

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60076
United States

Musa Subasi (Contact Author)

University of Maryland-College Park - Robert H. Smith School of Business ( email )

University of Maryland-College Park
4332N Van Munching Hall
College Park, MD 20742
United States
301-314-1055 (Phone)

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