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Information Transmission in Finance

Author

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  • Paul C. Tetlock

    () (Columbia University, New York, New York 10027)

Abstract

Because theories in finance rely critically on what agents know, designing powerful tests of these theories requires measuring information transmission. In this review, I characterize the rapidly growing subfield directly analyzing information in financial markets. Its three hallmarks are the examination of (a) a wide array of informative events, (b) different mechanisms for transmitting information, and (c) measures of information content based on nonnumeric information. Recent research directly measures flows of information to shed light on diverse phenomena in asset pricing, such as market reactions to news and nonnews, investors’ portfolio choices, and mutual fund flows and returns, and in corporate finance, such as mergers and acquisitions, initial public offering (IPO) underpricing, and executive compensation. Continued improvements in access to data and computing power are likely to propel this line of research for years to come.

Suggested Citation

  • Paul C. Tetlock, 2014. "Information Transmission in Finance," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 365-384, December.
  • Handle: RePEc:anr:refeco:v:6:y:2014:p:365-384
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110613-034449
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    Citations

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    Cited by:

    1. Leif Anders Thorsrud, 2016. "Nowcasting using news topics Big Data versus big bank," Working Papers No 6/2016, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    2. Gregory S. Miller & Douglas J. Skinner, 2015. "The Evolving Disclosure Landscape: How Changes in Technology, the Media, and Capital Markets Are Affecting Disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 53(2), pages 221-239, May.
    3. Zha Giedt, Jenny, 2016. "Economic Consequences of Announcing Strategic Alternatives," MPRA Paper 81356, University Library of Munich, Germany, revised 10 Sep 2017.
    4. Ahmad, Khurshid & Han, JingGuang & Hutson, Elaine & Kearney, Colm & Liu, Sha, 2016. "Media-expressed negative tone and firm-level stock returns," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 152-172.
    5. repec:hrv:faseco:33078973 is not listed on IDEAS
    6. Vegard Høghaug Larsen & Leif Anders Thorsrud, 2017. "Asset returns, news topics, and media effects," Working Papers No 5/2017, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    7. repec:eee:intfin:v:55:y:2018:i:c:p:112-133 is not listed on IDEAS
    8. Benjamin M. Blau & Scott E. Hein & Ryan J. Whitby, 2016. "The Financial Impact Of Lender-Of-Last-Resort Borrowing From The Federal Reserve During The Financial Crisis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 39(2), pages 179-206, June.
    9. repec:eee:jfinec:v:129:y:2018:i:1:p:136-153 is not listed on IDEAS

    More about this item

    Keywords

    media coverage; news tone; attention; investor sentiment; textual analysis;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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