The Handbook of News Analytics in Finance

4.2 THE VALUE OF NEWS FOR THE US STOCK MARKET

The idea that news can impact the value of stock prices does not always make a lot of sense to millions of investors who have entrusted their lifetime savings to mutual funds, pension funds, or professional fund managers. Moreover, the notion that an ephemeral item such as a news article could change the net worth value of their nest egg could become quite frightening.

For decades, investors have been told that long-term investments are the serious investments and that day-traders are just after get-rich-quick schemes, not something that a professional investor would ever consider. Then the stock market crash of 2008 came and, along with it, the most powerful recession of our lifetime. Questions such as “how could we miss it” or “how could that happen” abounded. To this day, the experts are working on finding a good explanation of what happened and why, while the US federal government is busy at work in trying to alter the regulatory landscape forever.

The realities of the stock market crash of 2008 have shown one more time how fragile the stock market system really is. For all the questions and studies that attempt to explain what happened in 2008, there is one simple explanation: the supply of stocks far exceeded the demand for stocks. After all, the stock market “is” a market and a market's main functioning rule is demand and supply. For every seller there has to be a buyer. If more sellers than buyers come into the market, stock ...