Time Variation in the News-Returns Relationship

58 Pages Posted: 17 Jul 2019 Last revised: 14 Apr 2020

See all articles by Paul Glasserman

Paul Glasserman

Columbia Business School

Fulin Li

University of Chicago - Booth School of Business

Harry Mamaysky

Columbia University - Columbia Business School

Date Written: July 16, 2019

Abstract

The well-documented underreaction of stock prices to news exhibits substantial time variation, and comoves with institutional capital and trading motives. We show that higher risk-bearing capacity of financial intermediaries and lower passive ownership of stocks increase price underreaction. Changing informativeness of news, measured by entropy, explains a portion of the time variation in underreaction. But the effect of institutional trading motives remains large relative to variation in news informativeness. Controlling for institutional trading motives, as measured by short interest or share ownership, stock prices overreact to news.

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 (July 16, 2019). 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 Business School ( email )

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Fulin Li

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
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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