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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6.7 US PORTFOLIO SIMULATION USING NEWS ANALYTIC SIGNALS
Event studies are screening methods that show potential value, but they are in “event time”, while portfolios are managed in “calendar time”. It is instructive to attempt realistic portfolio construction using only RNSE event data for extreme sentiment days. Of course, a professional portfolio manager would incorporate these RNSE event data into her arsenal of other investment ideas and information sources, but it is instructive to see if even simple portfolio construction techniques using only news data can perform.
6.7.1 Investment hypothesis
The investment hypothesis under consideration is that it takes market participants a long time (days) to process a large amount of novel, strongly polar news, as suggested by the event studies. News and event ambiguity, fact validation, cognitive dissonance are all good reasons to hypothesize that investors can take a longer time to process new information that has extreme sentiment.
Behavioral response to information is what is happening here. Issues of herding, cross-validation, overreaction and underreaction, cognitive dissonance, and attention all come into play.
It is instructive to attempt realistic portfolio construction using only RNSE event data for extreme sentiment days. Of course, a serious portfolio manager would incorporate RNSE event data into her arsenal of other investment ideas and information sources, but it is instructive to see if even simple portfolio construction ...
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I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.