May 2011
Beginner to intermediate
384 pages
12h 28m
English
Content preview from The Handbook of News Analytics in FinanceBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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3.2 LITERATURE REVIEW
There is a surprisingly rich literature on the relationship between news and financial markets going back to Niederhoffer's (1971) pioneering study of world events and stock prices, where world events were defined as five- to eight-column headlines in the New York Times and then organized into categories of meaning. Niederhoffer found that large stock price changes did follow world events more than randomly selected days, but that a particular category into which a world event falls did not add much incremental information about future price movements.
Measuring public information by the number of news releases by Reuter's News Service per unit of time, Berry and Howe (1994) showed that there is a positive, moderate relationship between public information and trading volume. Engle and Ng (1993) defined the “news impact curve” which measures how new information is incorporated into volatility estimates. However, by studying the number of news announcements reported daily by Dow Jones & Co., Mitchell and Mulherin (1994) did not find any strong relation between news and market activity. Hong, Lim, and Stein (2000) confirmed that firm-specific information, especially negative information, diffuses only gradually across the investing public.
On the macroeconomic front, Pearce and Roley (1985) showed that on announcement days surprises related to monetary policy significantly affect stock prices, but only found limited evidence of an impact from inflation surprises ...
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