The Handbook of News Analytics in Finance

6.1 INTRODUCTION

Alpha hunters are always looking for new territory. When a strategy becomes known and used by too many players, the collective market impact of getting in and getting out squeezes out all the profit, and only the lowest cost transactors will be able to use it. The pack needs to move on.

Textual information is promising new territory. Bill Gross, of the PIMCO investment management company, described equity valuation as “that mysterious fragile flower where price is part perception, part valuation, and part hope or lack thereof.” An old Wall Street proverb says, more tersely, “Stocks are stories, bonds are mathematics.”

This has enough truth in it that looking for the right stories is a worthwhile activity. Modern high-end newsfeeds are designed to facilitate technology-intensive methods in that activity. News gathering is increasingly supported by automation that monitors a large and growing subset of the web and information in proprietary databases. There are plenty of places to find potentially investment-relevant text. Consider three broad classifications:

1. News News was once exclusively disseminated on paper, radio, television, teletype “wire”, fax, and eventually via dedicated electronic feeds. It is now ubiquitous on the web, and news vendors have moved dramatically upscale, with richly tagged news suitable for “quantextual” investment and trading strategies.
2. Pre-news Pre-news is the raw material reporters read before they write news. It comes from primary ...