News as Sources of Jumps in Stock Returns: Evidence From 21 Million News Articles for 9000 Companies

53 Pages Posted: 19 Jan 2019 Last revised: 21 May 2019

See all articles by Yoontae Jeon

Yoontae Jeon

Ryerson University - Ted Rogers School of Management

Thomas H. McCurdy

University of Toronto - Rotman School of Management; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Xiaofei Zhao

Georgetown University - Robert Emmett McDonough School of Business

Date Written: May 18, 2019

Abstract

Stock prices exhibit large, discrete movements, typically labelled as "jumps'". A potential important source of jumps in stock returns can be material news events. In this paper, we collect 21 million news articles associated with more than 9000 publicly-traded companies from the Factiva database and use textual analysis to derive measures summarizing those news, including news frequency, tone and uncertainty. We find that these measures of news flow content are significantly related to nonparametric measures of jump intensity and jump size distributions and explain an important fraction of variations in the jumps across individual companies. Further, those nonparametric analyzes provide input for our time-series modelling of firm-level news processes. By modelling the observable news process explicitly and jointly with a latent jump process, we find that news are important drivers of the jumps in stock returns. Consequently, we are able to enrich the economic content of the widely-used econometric models of jumps used for applications such as option pricing and risk management where stock return jump models are frequently used.

Keywords: information, textual analysis, jumps

JEL Classification: G1

Suggested Citation

Jeon, Yoontae and McCurdy, Thomas H. and Zhao, Xiaofei, News as Sources of Jumps in Stock Returns: Evidence From 21 Million News Articles for 9000 Companies (May 18, 2019). 2019 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=3318517 or http://dx.doi.org/10.2139/ssrn.3318517

Yoontae Jeon

Ryerson University - Ted Rogers School of Management ( email )

350 Victoria Street
Toronto, Ontario M5B 2K3
Canada

Thomas H. McCurdy

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-3425 (Phone)
416-971-3048 (Fax)

HOME PAGE: http://www-2.rotman.utoronto.ca/~tmccurdy

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Xiaofei Zhao (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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