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The tone of financial news and the perceptions of stock and CDS traders

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  • Liebmann, Michael
  • Orlov, Alexei G.
  • Neumann, Dirk

Abstract

This paper applies novel sentiment analyses to Reuters news to study stock and CDS traders' differential interpretations of financial news. We construct sentiment measures to identify which news content influences investors' behavior and create dynamic word lists that reflect the divergent viewpoints of CDS and equity investors. We find that (1) equity and CDS traders focus on different content within the same news; (2) traders particularly disagree with respect to news concerning debt topics, especially regarding M&A activity; (3) the Great Recession impacted debt news content and altered the typical inverse relationship between equity and CDS markets on news days.

Suggested Citation

  • Liebmann, Michael & Orlov, Alexei G. & Neumann, Dirk, 2016. "The tone of financial news and the perceptions of stock and CDS traders," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 159-175.
    • Handle: RePEc:eee:finana:v:46:y:2016:i:c:p:159-175
    DOI: 10.1016/j.irfa.2016.05.001
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    Cited by:

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    4. Salisu, Afees A. & Vo, Xuan Vinh, 2020. "Predicting stock returns in the presence of COVID-19 pandemic: The role of health news," International Review of Financial Analysis, Elsevier, vol. 71(C).
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    More about this item

    Keywords

    News content analysis; Sentiment analysis; Financial news; Investor perception; The Great Recession; News anticipation; Post-announcement drift; Semi-strong market efficiency;
    All these keywords.

    JEL classification:

    • 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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