First to \"Read\" the News: New Analytics and Algorithmic Trading

Keim, Donald B.; Massa, Massimo; von Beschwitz, Bastian

doi:10.17016/IFDP.2018.1233

Working Paper

First to \"Read\" the News: New Analytics and Algorithmic Trading

Abstract: Exploiting a unique identification strategy based on inaccurate news analytics, we document a causal effect of news analytics on the market irrespective of the informational content of the news. We show that news analytics speed up the stock price and trading volume response to articles, but reduce liquidity. Inaccurate news analytics lead to small price distortions that are corrected quickly. The market impact of news analytics is greatest for press releases, which are timelier and easier to interpret algorithmically. Furthermore, we provide evidence that high frequency traders rely on the information from news analytics for directional trading on company-specific news.

Keywords: Stock Price Reaction; News Analytics; High Frequency Trading; Press Releases;

JEL Classification: G10; G12; G14;

https://doi.org/10.17016/IFDP.2018.1233