Time Variation in the News-Returns Relationship

57 Pages Posted: 17 Jul 2019 Last revised: 17 Jun 2022

See all articles by Paul Glasserman

Paul Glasserman

Columbia University - Columbia Business School

Fulin Li

University of Chicago - Booth School of Business; University of Chicago - Department of Economics

Harry Mamaysky

Columbia University - Columbia Business School

Date Written: January 10, 2022

Abstract

The well-documented underreaction of stock prices to news exhibits substantial time variation. Higher risk-bearing capacity of financial intermediaries, lower passive ownership of stocks, and more informative news increase price responses to contemporaneous news; surprisingly, they also increase price responses to lagged news (underreaction). Our findings are not driven by short-sale constraints, serial correlation in news flow, or improved information processing capacity. We discuss possible mechanisms based on investor behavior and strategic order-splitting by institutions. A simple model with limited attention and three investor types – institutional, non-institutional, passive – predicts the varying response to news we observe.

Keywords: information choice; asset pricing; price efficiency; attention

JEL Classification: G14, G20, D83

Suggested Citation

Glasserman, Paul and Li, Fulin and Mamaysky, Harry, Time Variation in the News-Returns Relationship (January 10, 2022). Columbia Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3420981 or http://dx.doi.org/10.2139/ssrn.3420981

Paul Glasserman

Columbia University - Columbia Business School ( email )

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Fulin Li

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Harry Mamaysky (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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