Assimilation of Oil News Into Prices

42 Pages Posted: 27 Nov 2017 Last revised: 1 Apr 2019

See all articles by Tim Loughran

Tim Loughran

University of Notre Dame

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance

Ioannis Pragidis

Democritus University of Thrace

Date Written: March 31, 2019

Abstract

Do investors quickly and rationally react to the content of oil-related news articles revealing supply and demand information? Our paper creates a novel keyword list of 130 oil-related words and modifiers that enable investors/researchers to measure the information content of oil stories. We find significant short term overreaction to the text of Dow Jones oil-related news articles. Phrases like output cut, production cut, shortage, and demand up in lagged news articles are associated with lower oil prices the following trading day. The evidence is consistent with the notion that oil traders overreact to the content of widely-read news articles.

Keywords: Textual analysis; news stories; oil prices; overreaction; tone

Suggested Citation

Loughran, Tim and McDonald, Bill and Pragidis, Ioannis, Assimilation of Oil News Into Prices (March 31, 2019). Available at SSRN: https://ssrn.com/abstract=3074808 or http://dx.doi.org/10.2139/ssrn.3074808

Tim Loughran (Contact Author)

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Ioannis Pragidis

Democritus University of Thrace ( email )

University Campus
Department of Economics
Komotini, Rodopi 69100
Greece

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