How News Affects Sectoral Stock Prices Through Earnings Expectations and Risk Premia

28 Pages Posted: 24 Nov 2020

See all articles by Kristian Kristiansen

Kristian Kristiansen

European Central Bank (ECB)

Anna Hvid

affiliation not provided to SSRN

Date Written: November, 2020

Abstract

A growing body of literature analyses the impact of news on companies’ equity prices. We add to this literature by showing that the transmission channel of news to prices differs across sectors. First, we disentangle sectoral equity prices into components of expected future earnings and equity risk premia. Then, we evaluate how these react to general and sector specific sentiment shocks constructed from Reuters news articles. We find that price changes for especially the financial sector are mainly driven by changes in equity risk premia, while changes in earnings expectations play a comparatively larger role for other sectors.

JEL Classification: G10, G12, G14

Suggested Citation

Kristiansen, Kristian and Hvid, Anna, How News Affects Sectoral Stock Prices Through Earnings Expectations and Risk Premia (November, 2020). ECB Working Paper No. 20202493, Available at SSRN: https://ssrn.com/abstract=3736729 or http://dx.doi.org/10.2139/ssrn.3736729

Kristian Kristiansen (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Anna Hvid

affiliation not provided to SSRN

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