Institutional Trading around Corporate News: Evidence from Textual Analysis. (8th January 2020)

• Record Type: Journal Article
• Authors: Huang, Alan Guoming; Tan, Hongping; Wermers, Russ
• Editors: Jiang, Wei
• Is Part Of: Review of financial studies. Volume 33:Number 10(2020)
• Page Start: 4627
• Page End: 4675
• Publication Date: 2020-01-08
• Subjects: Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1093/rfs/hhz136
• Languages: English
• ISSNs: 0893-9454

Abstract

Abstract: We examine institutional trading surrounding corporate news by combining a comprehensive database of newswire releases on U.S. firms with a high-frequency database of institutional trades. To identify the ability of institutions to predict or quickly interpret news, we form "news clusters" of related news about a particular firm that occurs in rapid succession. We find that institutions chiefly trade on the tone of news directly after the earliest news release in a cluster, and such news-motivated trading predicts returns over the following weeks. Our results suggest that institutional investors contribute to price efficiency through the speedy interpretation of public information.