Tomorrow's fish and chip paper? Slowly incorporated news and the cross-section of stock returns

Ran Tao, Chris Brooks*, Adrian Bell

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

The link between news and investor decision making is widely discussed in the literature. Utilising unique U.S. firm-level news data between 1979 and 2016, we document a cross-sectional difference in the speed of the diffusion of information contained in news. We distinguish news articles as being either slowly or quickly incorporated into contemporaneous stock prices. The return spread between stocks classified according to these two types of news yields a statistically significant profit of 139 basis points per month. This abnormal return cannot be explained by other well-known risk factors and is robust when allowing for trading costs. Overall, our research refines the role of news regarding information dissemination in the financial markets.

Original languageEnglish
Pages (from-to)774-795
Number of pages22
JournalEuropean Journal of Finance
Volume27
Issue number8
Early online date16 Nov 2020
DOIs
Publication statusPublished - 01 Aug 2021
Externally publishedYes

Bibliographical note

Funding Information:
We are grateful to Chris Adcock (the Editor), an Associate Editor and two anonymous referees for constructive comments and suggestions. We thank Tian Han for advice about textual data mining and the Google Cloud Platform (GCP) for providing research credits for our sentiment analysis. We also thank C.S Agnes Cheng, Tony Moore, Simone Varotto, Steven Young, the 2019 BAFA doctoral conference and the FMA Europe Doctoral Student Consortium, for useful comments.

Publisher Copyright:
© 2020 Informa UK Limited, trading as Taylor & Francis Group.

Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.

Keywords

  • anomalies
  • information dissemination
  • investor attention
  • News sentiment
  • stock return predictability

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

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