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Assimilation of oil news into prices

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  • Loughran, Tim
  • McDonald, Bill
  • Pragidis, Ioannis

Abstract

Do investors quickly and rationally react to the content of oil-related news articles revealing supply and demand information? Our paper creates a novel keyword list of 130 oil-related words and modifiers that enable investors/researchers to measure the information content of oil stories. We find significant short-term overreaction to the text of Dow Jones oil-related news articles. Phrases like output cut, production cut, shortage, and demand up in lagged news articles are associated with lower oil prices the following trading day. The evidence is consistent with the notion that oil traders overreact to the content of widely-read news articles.

Suggested Citation

  • Loughran, Tim & McDonald, Bill & Pragidis, Ioannis, 2019. "Assimilation of oil news into prices," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 105-118.
    • Handle: RePEc:eee:finana:v:63:y:2019:i:c:p:105-118
    DOI: 10.1016/j.irfa.2019.03.008
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    6. Charles W. Calomiris & Nida Çakır Melek & Harry Mamaysky, 2021. "Predicting the Oil Market," NBER Working Papers 29379, National Bureau of Economic Research, Inc.
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