Tomorrow's Fish and Chip Paper? Slowly Incorporated News and the Cross-Section of Stock Returns

40 Pages Posted: 30 Aug 2019

See all articles by Ran Tao

Ran Tao

University of Reading - ICMA Centre

Chris Brooks

University of Reading - ICMA Centre

Adrian R. Bell

University of Reading - ICMA Centre

Date Written: August 27, 2019

Abstract

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

Tao, Ran and Brooks, Chris and Bell, Adrian R., Tomorrow's Fish and Chip Paper? Slowly Incorporated News and the Cross-Section of Stock Returns (August 27, 2019). Available at SSRN: https://ssrn.com/abstract=3363648 or http://dx.doi.org/10.2139/ssrn.3363648

Ran Tao (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Chris Brooks

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

Adrian R. Bell

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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