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News Articles and Equity Trading

Author

Listed:
  • Albert S. Kyle

    () (Robert H. Smith School of Business, University of Maryland)

  • Anna Obizhaeva

    () (New Economic School)

  • Nitish Ranjan Sinha

    () (Board of Governors of the Federal Reserve System)

  • Tugkan Tuzun

    () (Board of Governors of the Federal Reserve System)

Abstract

Using a database of news articles from Thomson Reuters for 2003-2008, we investigate how the arrival rate of news articles mentioning an individual stock varies with the level of trading activity in that stock. Defining trading activity W as the product of dollar volume and volatility, we estimate that the arrival rate of news articles is proportional to W0.68. Market microstructure invariance predicts that the stock trading process unfolds in "business time" which passes at a rate proportional to W2=3. Since the estimated exponent of 0.68 is close to 2=3, we conclude that information in news articles ows into the market in the same units of business time that microstructure invariance predicts to govern the trading process for stocks. The arrival of news articles is well approximated by a negative binomial process with the over-dispersion parameter equal to 2:11.

Suggested Citation

  • Albert S. Kyle & Anna Obizhaeva & Nitish Ranjan Sinha & Tugkan Tuzun, 2017. "News Articles and Equity Trading," Working Papers w0233, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0233
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    File URL: http://www.cefir.ru/papers/WP233.pdf
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    References listed on IDEAS

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    1. Mitchell, Mark L & Mulherin, J Harold, 1994. " The Impact of Public Information on the Stock Market," Journal of Finance, American Finance Association, vol. 49(3), pages 923-950, July.
    2. Paul C. Tetlock & Maytal Saar‐Tsechansky & Sofus Macskassy, 2008. "More Than Words: Quantifying Language to Measure Firms' Fundamentals," Journal of Finance, American Finance Association, vol. 63(3), pages 1437-1467, June.
    3. T. Clifton Green, 2004. "Economic News and the Impact of Trading on Bond Prices," Journal of Finance, American Finance Association, vol. 59(3), pages 1201-1234, June.
    4. Joel Hasbrouck, 1999. "Trading Fast and Slow: Security Market Events in Real Time," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-012, New York University, Leonard N. Stern School of Business-.
    5. Kathleen Weiss Hanley, 2010. "The Information Content of IPO Prospectuses," Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2821-2864, July.
    6. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    7. Paul C. Tetlock, 2010. "Does Public Financial News Resolve Asymmetric Information?," Review of Financial Studies, Society for Financial Studies, vol. 23(9), pages 3520-3557.
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