RESEARCH PAPER: Institutional Trading around Corporate News: Evidence from Textual Analysis
Authors:
Alan Guoming Huang, SAF, University of Waterloo (pictured)
Hongping Tan, McGill University
Russ Wermers, University of Maryland
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.