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Stock Price Reaction to News: The Joint Effect of Tone and Attention on Momentum

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  • Thanh D. Huynh
  • Daniel R. Smith

Abstract

The authors find that the market's underreaction to good news is a driver of Gutierrez and Kelly's [2008] weekly momentum returns. By employing a dataset of 10.1 million news items in 4 regions (the U.S., Europe, Japan, and Asia Pacific), they find that stocks having important and positive news exhibit stronger return continuation. The study findings suggest that investors in international markets have similar underreaction to the same news characteristics.

Suggested Citation

  • Thanh D. Huynh & Daniel R. Smith, 2017. "Stock Price Reaction to News: The Joint Effect of Tone and Attention on Momentum," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 18(3), pages 304-328, July.
    • Handle: RePEc:taf:hbhfxx:v:18:y:2017:i:3:p:304-328
    DOI: 10.1080/15427560.2017.1339190
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    Citations

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    Cited by:

    1. Ding, Wenjie & Mazouz, Khelifa & Wang, Qingwei, 2021. "Volatility timing, sentiment, and the short-term profitability of VIX-based cross-sectional trading strategies," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 42-56.
    2. Andrey Shternshis & Stefano Marmi, 2023. "Price predictability at ultra-high frequency: Entropy-based randomness test," Papers 2312.16637, arXiv.org, revised May 2024.
    3. Rahman, Dewan & Oliver, Barry & Faff, Robert, 2020. "Evidence of strategic information uncertainty around opportunistic insider purchases," Journal of Banking & Finance, Elsevier, vol. 117(C).
    4. Taoufik Elkemali, 2023. "Uncertainty and Financial Analysts’ Optimism: A Comparison between High-Tech and Low-Tech European Firms," Sustainability, MDPI, vol. 15(3), pages 1-22, January.
    5. Saliha Theiri & Abdessatar Ati, 2020. "Weak Form of Efficiency Hypotheses: Empirical Modeling With Box ¨CPierce, ADF and ARCH Tests," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 137-149, October.
    6. Tom Marty & Bruce Vanstone & Tobias Hahn, 2020. "News media analytics in finance: a survey," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1385-1434, June.
    7. Mengyu Wang & Shay B. Cohen & Tiejun Ma, 2024. "Modeling News Interactions and Influence for Financial Market Prediction," Papers 2410.10614, arXiv.org.
    8. Mariano González Sánchez & María Encina Morales de Vega, 2018. "Corporate reputation and firms' performance: Evidence from Spain," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(6), pages 1231-1245, November.
    9. Chang, Rosita P. & Ko, Kuan-Cheng & Nakano, Shinji & Ghon Rhee, S., 2018. "Residual momentum in Japan," Journal of Empirical Finance, Elsevier, vol. 45(C), pages 283-299.
    10. Mengyu Wang & Tiejun Ma, 2024. "MANA-Net: Mitigating Aggregated Sentiment Homogenization with News Weighting for Enhanced Market Prediction," Papers 2409.05698, arXiv.org.
    11. Kun Chen & Xin Li & Peng Luo & J. Leon Zhao, 2021. "News-Induced Dynamic Networks for Market Signaling: Understanding the Impact of News on Firm Equity Value," Information Systems Research, INFORMS, vol. 32(2), pages 356-377, June.

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