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

Author

Listed:
  • Bastian von Beschwitz
  • Donald B. Keim

    (Wharton School
    University of Pennsylvania
    National Bureau of Economic Research)

  • Massimo Massa

    (Yale University
    University of Notre Dame
    European Institute of Business Administration
    National Bureau of Economic Research)

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.

Suggested Citation

  • Bastian von Beschwitz & Donald B. Keim & Massimo Massa, 2018. "First to "Read" the News: New Analytics and Algorithmic Trading," International Finance Discussion Papers 1233, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:1233
    DOI: 10.17016/IFDP.2018.1233
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    File URL: https://www.federalreserve.gov/econres/ifdp/files/ifdp1233.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • 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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