Tomorrow's Fish and Chip Paper? Slowly Incorporated News and the Cross-Section of Stock Returns
European Journal of Finance, Forthcoming
46 Pages Posted: 30 Aug 2019 Last revised: 2 Nov 2020
Date Written: August 27, 2019
The link between news and investor decision making is widely discussed in the literature. Utilising unique U.S. firm-level news data between 1979 and 2016, we document a cross-sectional difference in the speed of the diffusion of information contained in news. We distinguish news articles as being either slowly or quickly incorporated into contemporaneous stock prices. The return spread between stocks classified according to these two types of news yields a statistically significant profit of 139 basis points per month. This abnormal return cannot be explained by other well-known risk factors and is robust when allowing for trading costs. Overall, 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