Tomorrow's Fish and Chip Paper? Slowly Incorporated News and the Cross-Section of Stock Returns
40 Pages Posted: 30 Aug 2019
Date Written: August 27, 2019
A large literature debates the link between news and investor decision making. Relying on unique U.S. firm-level news data between 1979 and 2016, we document the cross-sectional difference in the speed of diffusion of the information contained in news. We distinguish news articles as being either slowly or quickly incorporated into contemporaneous stock prices. The return spread between these two types of news yields a statistically significant profitability (139 basis points per month) and this effect cannot be explained by other well-known risk factors. By employing novel attention data (Google Search Volume Index and Bloomberg News Readerships Index), we find that this news-induced anomaly can be attributed to limited-attention theory where firm-specific news is not read by investors. Our research refines the role of news regarding information dissemination in the financial markets.
Keywords: news sentiment, information dissemination, stock return predictability, investor attention, anomalies
JEL Classification: G12, G14
Suggested Citation: Suggested Citation