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Tomorrow’s fish and chip paper? Slowly incorporated news and the cross-section of stock returns

Tao, R., Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153 and Bell, A. ORCID: https://orcid.org/0000-0003-4531-0072 (2020) Tomorrow’s fish and chip paper? Slowly incorporated news and the cross-section of stock returns. European Journal of Finance. ISSN 1466-4364

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To link to this item DOI: 10.1080/1351847X.2020.1846575

Abstract/Summary

The link between news and investor decision making is widely discussed in the litera- ture. Utilising unique U.S. firm-level news data between 1979 and 2016, we document a cross-sectional difference in the speed of the diffusion of information contained in news. We distinguish news articles as being either slowly or quickly incorporated into contemporaneous stock prices. The return spread between stocks classified according to these two types of news yields a statistically significant profit of 139 basis points per month. This abnormal return cannot be explained by other well-known risk factors and is robust when allowing for trading costs. Overall, our research refines the role of news regarding information dissemination in the financial markets.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:93771
Publisher:Taylor and Francis

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