News coverage may boost company’s stock trades
The more times a company is mentioned in the morning newspaper, the greater volume of stock shares it will trade during the day, new research shows.
Previous studies have shown that following query volume for financial search terms on Google could predict stock market movement, while also revealing that increases in the number of views of financially related Wikipedia pages was a prelude to stock market falls.
The new study, published in the journal Scientific Reports, that tracked mentions of the names of the 30 companies on the Dow Jones Industrial Average in the Financial Times, shows a link between what hits the news and stock market trading.
Researchers looked at 1,821 issues of the Financial Times from January 2, 2007 to December 31, 2012.
“It seems intuitive that trading decisions are affected by news available to a trader—and equally, that big movements in the market can cause big waves in the news,” says Suzy Moat of the business school at the University of Warwick. “In this study, we were seeking to provide a quantitative description of the relationship between movements in financial markets and developments in financial news.”
“We looked at a corpus of six years of daily print issues of the Financial Times, tracking the mentions of companies that form the Dow Jones Industrial Average,” says Merve Alanyali of the Center for Complexity at Warwick.
“Interestingly, we found that a greater number of mentions of a company in the news on a given morning corresponded to a greater volume of trading for that company during the same day, as well as a greater change in price for a company’s stocks.”
“The results are consistent with the hypothesis that movements in the news and movements in the markets may exert a mutual influence upon each other,” says Tobias Preis of Warwick’s business school.
“However we could find no evidence of a relationship between the number of mentions of a company in the morning’s news and the direction of price movement for a company’s shares.”
Source: University of Warwick