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The Handbook of News Analytics in Finance by Leela Mitra, Gautam Mitra

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1.4 MODELS AND APPLICATIONS

News analytics in finance is the use of technology and algorithms to process news within the investment management process. It allows investors to update their beliefs about the future market environment more effectively. This technology may be geared towards human decision support or it may be used to create automated quantitative strategies. The use of news data in addition to historic market data makes models more proactive and less reactive. The applications broadly fall into two areas: trading and risk control.

1.4.1 Information flow and computational architecture

News analytics in finance focuses on improving IT-based legacy system applications. These improvements come through research and development directed at automating/semi-automating programmed trading, fund rebalancing and risk control applications.

The established good practice of applying these analytics in the traditional manual approach are as follows. News stories and announcements arrive synchronously and asynchronously. In the market, asset (stocks, commodities, FX rates, etc.) prices move (market reactions). The professionals digest these items of information and accordingly make trading decisions, investment decisions and recompute their risk exposures.

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Figure 1.8. Information flow and computational architecture

The information flow and the (semi) automation of the corresponding ...

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