The Momentum of News

55 Pages Posted: 8 Nov 2018

See all articles by Ying Wang

Ying Wang

Central University of Finance and Economics (CUFE)

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Xiaoneng Zhu

Shanghai University of Finance and Economics

Date Written: October 16, 2018

Abstract

Relying on a comprehensive data set of news releases, we construct monthly firm-level news sentiment scores during the 2000–2016 period and document a news momentum phenomenon of stocks with more positive news in the past generating more positive news in the future. We propose three hypotheses to explain this phenomenon and find that news momentum is driven by the persistence of firms’ fundamentals rather than stale news or firms’ strategic disclosure. A trading strategy that combines a long position in a good news quintile portfolio with a short position in a bad news portfolio generates a 7.45% risk-adjusted return annually. This return anomaly appears on both news and non-news days. Overall, these findings suggest that the cross-sectional prediction of news is not fully incorporated into the stock price by investors.

Keywords: News; Momentum; Fundamentals; Information Environments; Future Returns

JEL Classification: G02; G10; G14

Suggested Citation

Wang, Ying and Zhang, Bohui and Zhu, Xiaoneng, The Momentum of News (October 16, 2018). Available at SSRN: https://ssrn.com/abstract=3267337 or http://dx.doi.org/10.2139/ssrn.3267337

Ying Wang

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

Xiaoneng Zhu (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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