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

See all articles by Ran Tao

Ran Tao

Accounting and Finance Department, University of Bristol

Chris Brooks

University of Bristol - School of Economics, Finance and Management

Adrian R. Bell

University of Reading - ICMA Centre

Date Written: August 27, 2019

Abstract

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

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). European Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3363648 or http://dx.doi.org/10.2139/ssrn.3363648

Ran Tao (Contact Author)

Accounting and Finance Department, University of Bristol

15-19 Tyndall's Park Rd
Bristol, BT95EE
United Kingdom

Chris Brooks

University of Bristol - School of Economics, Finance and Management ( email )

School of Accounting and Finance
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

Adrian R. Bell

University of Reading - ICMA Centre ( email )

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

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