Financial Markets and Portfolio Management

, Volume 28, Issue 4, pp 409–436 | Cite as

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

Article

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.

Keywords

Underreaction Media coverage News Abnormal trading volume Investor inattention 

JEL Classification

G12 G14 

References

  1. 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)Google Scholar
  2. Bagnoli, M., Clement, M.B., Watts, S.G.: Around-the-clock media coverage and the timing of earnings announcements. Working Paper, Purdue University (2005)Google Scholar
  3. 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)CrossRefGoogle Scholar
  4. 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)CrossRefGoogle Scholar
  5. Bhushan, R.: Firm characteristics and analyst following. J. Account. Econ. 11(2–3), 255–274 (1989)CrossRefGoogle Scholar
  6. 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)CrossRefGoogle Scholar
  7. Brown, S.J., Warner, J.B.: Using daily stock returns: the case of event studies. J. Financ. Econ. 14(1), 3–31 (1985)CrossRefGoogle Scholar
  8. Chan, W.S.: Stock price reaction to news and no-news: drift and reversal after headlines. J. Financ. Econ. 70(2), 223–260 (2003)CrossRefGoogle Scholar
  9. Corrado, C.J.: A nonparametric test for abnormal security-price performance studies. J. Financ. Econ. 23(2), 385–395 (1989)CrossRefGoogle Scholar
  10. Da, Z., Engelberg, J., Gao, P.: In search of attention. J. Finance 66(5), 1461–1499 (2011)CrossRefGoogle Scholar
  11. DellaVigna, S., Pollet, J.M.: Investor inattention and Friday earnings announcements. J. Finance 64(2), 709–749 (2009)CrossRefGoogle Scholar
  12. Fang, L., Peress, J.: Media coverage and the cross-section of stock returns. J. Finance 64(5), 2023–2052 (2009)CrossRefGoogle Scholar
  13. 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)CrossRefGoogle Scholar
  14. 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)CrossRefGoogle Scholar
  15. Hong, H., Stein, J.C.: A unified theory of underreaction, momentum trading, and overreaction in asset markets. J. Finance 54(6), 2143–2184 (1999)CrossRefGoogle Scholar
  16. 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)Google Scholar
  17. Kolari, J.W., Pynnonen, S.: Nonparametric rank test for event studies. J. Empir. Finance 18(5), 953–971 (2011)CrossRefGoogle Scholar
  18. Loh, R.K.: Investor inattention and the underreaction to stock recommendations. Financ. Manage. 39(3), 1223–1252 (2010)CrossRefGoogle Scholar
  19. Louis, H., Sun, A.: Investor inattention and the market reaction to merger announcements. Manage. Sci. 56(10), 1781–1793 (2010)CrossRefGoogle Scholar
  20. MacKinlay, A.C.: Event studies in economics and finance. J. Econ. Lit. 35(1), 13–39 (1997)Google Scholar
  21. 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)CrossRefGoogle Scholar
  22. Nagel, S.: Short sales, institutional investors and the cross-section of stock returns. J. Financ. Econ. 78(2), 277–309 (2005)CrossRefGoogle Scholar
  23. Neuhierl, A., Scherbina, A.D., Schlusche, B.: Market reaction to corporate press releases. J. Financ. Quant. Anal. 48(4), 1207–1240 (2013)CrossRefGoogle Scholar
  24. Schmitz, P.: Market and individual investors reactions to corporate news in the media. Working Paper, University of Mannheim (2007)Google Scholar
  25. 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)Google Scholar
  26. Stickel, S.E.: The anatomy of the performance of buy and sell recommendations. Financ. Anal. J. 51(5), 25–39 (1995)CrossRefGoogle Scholar
  27. Tetlock, P.C.: Giving content to investor sentiment: the role of media in the stock market. J. Finance 57(3), 1139–1168 (2007)CrossRefGoogle Scholar
  28. Tetlock, P.C., Saar-Tsechansky, M., Macskassy, S.: More than words: quantifying language to measure firms’ fundamentals. J. Finance 58(3), 1437–1467 (2008)CrossRefGoogle Scholar
  29. White, H.: A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48(4), 817–838 (1980)CrossRefGoogle Scholar
  30. Womack, K.L.: Do brokerage analysts’ recommendations have investment value? J. Finance 51(1), 137–167 (1996)CrossRefGoogle Scholar

Copyright information

© Swiss Society for Financial Market Research 2014

Authors and Affiliations

  • Alexander Kerl
    • 1
  • Carolin Schürg
    • 2
  • Andreas Walter
    • 1
  1. 1.Department of Financial ServicesUniversity of GiessenGiessenGermany
  2. 2.Finance DepartmentJohannes Gutenberg UniversityMainzGermany

Personalised recommendations