First to "Read" the News: New Analytics and Algorithmic Trading

67 Pages Posted: 6 Aug 2018 Last revised: 21 Feb 2019

See all articles by Bastian von Beschwitz

Bastian von Beschwitz

Board of Governors of the Federal Reserve System

Donald B. Keim

University of Pennsylvania - Wharton School

Massimo Massa

INSEAD - Finance

Date Written: 2018-07

Abstract

Exploiting a unique identification strategy based on inaccurate news analytics, we document a causal effect of news analytics on the market irrespective of the informational content of the news. We show that news analytics speed up the stock price and trading volume response to articles, but reduce liquidity. Inaccurate news analytics lead to small price distortions that are corrected quickly. The market impact of news analytics is greatest for press releases, which are timelier and easier to interpret algorithmically. Furthermore, we provide evidence that high frequency traders rely on the information from news analytics for directional trading on company-specific news.

Keywords: Stock Price Reaction, News Analytics, High Frequency Trading, Press Releases

JEL Classification: G10, G12, G14

Suggested Citation

von Beschwitz, Bastian and Keim, Donald B. and Massa, Massimo, First to "Read" the News: New Analytics and Algorithmic Trading (2018-07). FRB International Finance Discussion Paper No. 1233. Available at SSRN: https://ssrn.com/abstract=3226216 or http://dx.doi.org/10.17016/IFDP.2018.1233

Bastian Von Beschwitz (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Donald B. Keim

University of Pennsylvania - Wharton School ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-7685 (Phone)
215-898-6200 (Fax)

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
164
Abstract Views
655
rank
188,029
PlumX Metrics