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How news affects sectoral stock prices through earnings expectations and risk premia

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  • Kristiansen, Kristian
  • Hvid, Anna Kirstine

Abstract

A growing body of literature analyses the impact of news on companies’ equity prices. We add to this literature by showing that the transmission channel of news to prices differs across sectors. First, we disentangle sectoral equity prices into components of expected future earnings and equity risk premia. Then, we evaluate how these react to general and sector specific sentiment shocks constructed from Reuters news articles. We find that price changes for especially the financial sector are mainly driven by changes in equity risk premia, while changes in earnings expectations play a comparatively larger role for other sectors. JEL Classification: G10, G12, G14

Suggested Citation

  • Kristiansen, Kristian & Hvid, Anna Kirstine, 2020. "How news affects sectoral stock prices through earnings expectations and risk premia," Working Paper Series 2493, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20202493
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    References listed on IDEAS

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    More about this item

    Keywords

    dividend discount models; equity risk premia; news sentiment; stock returns; text analysis;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • 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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