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Mechanically Extracted Company Signals and their Impact on Stock and Credit Markets

Author

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  • Ferdinand Graf

    (Department of Economics, University of Konstanz, Germany)

Abstract

I analyze company news from Reuters with the 'General Inquirer' and relate measures of positive sentiment, negative sentiment and disagreement to abnormal stock returns, stock and option trading volume, the volatility spread and the CDS spread. I test hypotheses derived from market microstructure models. Consistent with these models, sentiment and disagreement are strongly related to trading volume. Moreover, sentiment and disagreement might be used to predict stock returns, trading volume and volatility. Trading strategies based on positive and negative sentiment are profitable if the transaction costs are moderate, indicating that stock markets are not fully efficient.

Suggested Citation

  • Ferdinand Graf, 2011. "Mechanically Extracted Company Signals and their Impact on Stock and Credit Markets," Working Paper Series of the Department of Economics, University of Konstanz 2011-18, Department of Economics, University of Konstanz.
    • Handle: RePEc:knz:dpteco:1118
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    File URL: http://www.uni-konstanz.de/FuF/wiwi/workingpaperseries/WP_18-11-Graf.pdf
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    References listed on IDEAS

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    Cited by:

    1. Liebmann, Michael & Orlov, Alexei G. & Neumann, Dirk, 2016. "The tone of financial news and the perceptions of stock and CDS traders," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 159-175.
    2. Stefan Feuerriegel & Helmut Prendinger, 2018. "News-based trading strategies," Papers 1807.06824, arXiv.org.

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    More about this item

    Keywords

    Content Analysis; Company News; Market Microstructure;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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