Skip to main content
SpringerLink
Log in

The impact of Financial Times Deutschland news on stock prices: post-announcement drifts and inattention of investors

  • Published:
Financial Markets and Portfolio Management Aims and scope Submit manuscript

Abstract

In this paper, we analyze the impact of Financial Times Deutschland (FTD) news on stock prices and trading volumes. Based on a sample of all news about German DAX, MDAX, and SDAX companies published in the news section of the FTD between 2006 and 2010, our results show that articles that contain positive (negative) information are associated with significantly positive (negative) abnormal returns and abnormal trading volumes around their publication. Furthermore, our results show an initial underreaction to these articles and subsequent post-publication drift. Based on the inattention hypothesis, we show that high-attention news (proxied by abnormal trading volume) almost instantaneously moves stock prices to their new valuation levels, whereas the price adjustment process takes much longer following low-attention news. Our results also hold within multivariate regressions where we additionally control for stock-specific characteristics (e.g., institutional ownership, size, and price-to-book ratio) as well as other attention-grabbing events (as measured by ad hoc announcements and cover-page news articles). Finally, we show that results primarily hold in the non-crisis period.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. Note that we focus only on those news articles in which the respective company is mentioned in the headline itself.

  2. Note that we do not split the sample into high- and low-attention stocks based on stock-specific characteristics, but that we use the level of abnormal trading volume directly before news articles are published to classify the attention level that each specific news article receives (i.e., classification into high- and low-attention news).

  3. Other studies, for example, Fang and Peress (2009), similarly use data from the LexisNexis database. Note that we search for articles on a company only if it belonged to one of the three indices within a respective year. As soon as a company is no longer part of the indices, it is dropped from the sample for that year.

  4. The average circulation of the FTD for 2006–2010 was 107,672 copies per day as reported by the IVW (Informationsgemeinschaft zur Feststellung von Werbeträgern e.V.). The IW (Institut der deutschen Wirtschaft - Köln) publishes a yearly statistic showing that the Financial Times Deutschland continuously took ninth place among German daily newspapers in the period 2006–2010 in terms of copies sold per day.

  5. Note that there is a significant subjective component involved in classifying articles as negative, positive, or neutral news. To limit subjectivity to the greatest extent possible, two of the authors independently classified all news. Only news that both authors classified identically as positive, negative, or neutral is used in our analyses.

  6. Similar figures are found by Schmitz (2007), whose data are exogenously classified by analysts of the research institute Media Tenor.

  7. Our approach of solely looking at articles published on the first two pages results in a focus on new, self-contained information as researched by the FTD. Even if third-party news (such as analyst recommendations) was mentioned, it was normally accompanied by further information and detailed insights.

  8. We estimate OLS parameters for the estimation period using the value-weighted CDAX as the independent variable. The CDAX encompasses the entire universe of stocks that are listed in either the Prime Standard or the General Standard on the Frankfurt Stock Exchange.

  9. Based on the fact that the Corrado rank test eventually leads to less precise estimations due to the reduced number of observations in case of expanding CAR periods, we use the non-parametric generalized rank test (GRANK) proposed by Kolari and Pynnonen (2011) for significance tests of CARs. This test is also robust to serial and cross-sectional correlation of returns as well as to event-induced volatility.

  10. The selected period \([-2,0]\) includes the cumulative abnormal returns of the two days prior to the official publication of a specific news article along with the publication day itself. Thereby, we control for the short-term information leakage effect that can occur in the event information has been made known prior to publication of the news article (i.e., via online early-view publication or other sources). As a robustness check, we divide the market reaction of stocks into the period \([-2, -1]\) and [0, +25], where the latter period includes the publication day return, and find qualitatively identical results.

  11. For the purpose of outlier elimination, we truncate the 2.5th and 97.5th percentile of REL_CAR [+1, +25].

  12. We employ a standard t test for comparing the average trading volume of the period \([-120, -26]\) with the average trading volume of days \([-2,-1]\).

  13. INST_OWNERSHIP is the percentage of total shares held strategically by institutional investors and thus is not available to ordinary investors.

  14. For each article, we download the company’s market capitalization at the beginning of the respective calendar year.

  15. The absolute level of the market reaction appears relatively pronounced. Remember, however, that our sample is comprised of headline stories from the first two pages of the FTD, a location that almost by definition implies that the news is highly significant.

  16. As a robustness check, we divide the market reaction of stocks into the period \([-2,-1]\) and [0, +25], where the latter period includes the publication day return. Both specifications have very similar results.

  17. We obtain similar results if we winsorize the dependent variable REL_CAR [+1, +25] instead of truncating potential outliers.

  18. As a robustness check, we perform all multivariate analyses again using the dependent variable based on the alternative specification that splits the two relevant periods into \([-2,-1]\) versus [0, +25]. Results are robust to this specification.

  19. In addition, the F test and adjusted \(R^{2}\) provide evidence that the model only holds in pre- and post-crisis times.

References

  • Antweiler, W., Frank, M.Z.: Do US stock markets typically overreact to corporate news stories? Working Paper, University of British Columbia, University of Minnesota (2006)

  • Bagnoli, M., Clement, M.B., Watts, S.G.: Around-the-clock media coverage and the timing of earnings announcements. Working Paper, Purdue University (2005)

  • Barber, B.M., Lehavy, R., Trueman, B.: Ratings changes, ratings levels, and the predictive value of analysts’ recommendations. Financ. Manage. 39(2), 533–553 (2010)

    Article  Google Scholar 

  • Barber, B.M., Odean, T.: All that glitters: the effect of attention and news on the buying behavior of individual and institutional investors. Rev. Financ. Stud. 21(2), 785–818 (2008)

    Article  Google Scholar 

  • Bhushan, R.: Firm characteristics and analyst following. J. Account. Econ. 11(2–3), 255–274 (1989)

    Article  Google Scholar 

  • Brixner, J.W., Walter, A.: Stock prices and the dissemination of second-hand information—new evidence from Germany. Appl. Econ. Lett. 14(2), 91–94 (2007)

    Article  Google Scholar 

  • Brown, S.J., Warner, J.B.: Using daily stock returns: the case of event studies. J. Financ. Econ. 14(1), 3–31 (1985)

    Article  Google Scholar 

  • Chan, W.S.: Stock price reaction to news and no-news: drift and reversal after headlines. J. Financ. Econ. 70(2), 223–260 (2003)

    Article  Google Scholar 

  • Corrado, C.J.: A nonparametric test for abnormal security-price performance studies. J. Financ. Econ. 23(2), 385–395 (1989)

    Article  Google Scholar 

  • Da, Z., Engelberg, J., Gao, P.: In search of attention. J. Finance 66(5), 1461–1499 (2011)

    Article  Google Scholar 

  • DellaVigna, S., Pollet, J.M.: Investor inattention and Friday earnings announcements. J. Finance 64(2), 709–749 (2009)

    Article  Google Scholar 

  • Fang, L., Peress, J.: Media coverage and the cross-section of stock returns. J. Finance 64(5), 2023–2052 (2009)

    Article  Google Scholar 

  • Griffin, P.A.: Got information? Investor response to form 10-K and form 10-Q EDGAR filings. Rev. Account. Stud. 8(4), 433–460 (2003)

    Article  Google Scholar 

  • Hirshleifer, D., Lim, S.S., Teoh, S.H.: Driven to distraction: extraneous events and underreaction to earnings news. J. Finance 64(5), 2289–2325 (2009)

    Article  Google Scholar 

  • Hong, H., Stein, J.C.: A unified theory of underreaction, momentum trading, and overreaction in asset markets. J. Finance 54(6), 2143–2184 (1999)

    Article  Google Scholar 

  • Hou, K., Peng, L., Xiong, W.: A tale of two anomalies: The implications of investor attention for price and earnings momentum. Working Paper, Ohio State University, City University of New York, Princeton University, NBER (2009)

  • Kolari, J.W., Pynnonen, S.: Nonparametric rank test for event studies. J. Empir. Finance 18(5), 953–971 (2011)

    Article  Google Scholar 

  • Loh, R.K.: Investor inattention and the underreaction to stock recommendations. Financ. Manage. 39(3), 1223–1252 (2010)

    Article  Google Scholar 

  • Louis, H., Sun, A.: Investor inattention and the market reaction to merger announcements. Manage. Sci. 56(10), 1781–1793 (2010)

    Article  Google Scholar 

  • MacKinlay, A.C.: Event studies in economics and finance. J. Econ. Lit. 35(1), 13–39 (1997)

    Google Scholar 

  • Michaely, R., Thaler, R.H., Womack, K.L.: Price reactions to dividend initiations and omissions: overreaction or drift? J. Finance 50(2), 573–608 (1995)

    Article  Google Scholar 

  • Nagel, S.: Short sales, institutional investors and the cross-section of stock returns. J. Financ. Econ. 78(2), 277–309 (2005)

    Article  Google Scholar 

  • Neuhierl, A., Scherbina, A.D., Schlusche, B.: Market reaction to corporate press releases. J. Financ. Quant. Anal. 48(4), 1207–1240 (2013)

    Article  Google Scholar 

  • Schmitz, P.: Market and individual investors reactions to corporate news in the media. Working Paper, University of Mannheim (2007)

  • Sprenger, T.O., Welpe, I.M.: News or noise? The stock market reaction to different types of company-specific news events. Working Paper, TU München (2011)

  • Stickel, S.E.: The anatomy of the performance of buy and sell recommendations. Financ. Anal. J. 51(5), 25–39 (1995)

    Article  Google Scholar 

  • Tetlock, P.C.: Giving content to investor sentiment: the role of media in the stock market. J. Finance 57(3), 1139–1168 (2007)

    Article  Google Scholar 

  • Tetlock, P.C., Saar-Tsechansky, M., Macskassy, S.: More than words: quantifying language to measure firms’ fundamentals. J. Finance 58(3), 1437–1467 (2008)

    Article  Google Scholar 

  • White, H.: A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48(4), 817–838 (1980)

    Article  Google Scholar 

  • Womack, K.L.: Do brokerage analysts’ recommendations have investment value? J. Finance 51(1), 137–167 (1996)

    Article  Google Scholar 

Download references

Acknowledgments

We received helpful suggestions from seminar participants at the “Marketing Meets Wall Street” conference in Frankfurt/Main. We also thank the anonymous referee for his comments and helpful suggestions.

Author information

Authors and Affiliations

  1. Department of Financial Services, University of Giessen, Licher Str. 74, 35394, Giessen, Germany

    Alexander Kerl & Andreas Walter

  2. Finance Department, Johannes Gutenberg University, Jakob-Welder-Weg 9, 55128, Mainz, Germany

    Carolin Schürg

Authors
  1. Alexander Kerl
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Carolin Schürg
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Andreas Walter
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Alexander Kerl.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Kerl, A., Schürg, C. & Walter, A. The impact of Financial Times Deutschland news on stock prices: post-announcement drifts and inattention of investors. Financ Mark Portf Manag 28, 409–436 (2014). https://doi.org/10.1007/s11408-014-0238-9

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11408-014-0238-9

Keywords

JEL Classification

Search

Navigation