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Analysts, News, Media and Market Sentiment

Paper Session

Friday, Jan. 5, 2018 8:00 AM - 10:00 AM

Loews Philadelphia, Regency Ballroom C1
Hosted By: American Finance Association
  • Chair: Eric So, Massachusetts Institute of Technology

Front Page News: The Effect of News Positioning on Financial Markets

Anastassia Fedyk
,
Harvard Business School

Abstract

This paper estimates the effect of presentation of information on financial markets, using a natural experiment in prominent "front page" positioning of news on the Bloomberg terminal. The front page and non-front page articles are indistinguishable by either algorithmic analysis or by the target audience of active finance professionals. Front page positioning induces 280% higher trading volumes and 180% larger price changes within the first ten minutes after news publication. Front page articles also see a stronger price drift for 30-45 minutes after publication. Subsequently, non-front page news begins to catch up, but the incorporation of non-front page information is substantially more gradual. As a result, the initial effects of positioning persist for days after publication. The effects induced by positioning are even stronger than the differences between articles of varying editorial importance.

Navigating Wall Street: Career Concerns and Analyst Transitions From Sell-side to Buy-side

Ling Cen
,
University of Toronto
Chayawat Ornthanalai
,
University of Toronto
Christoph M. Schiller
,
University of Toronto

Abstract

Existing studies find that sell-side analysts who make less accurate and less optimistic forecasts are more likely to be terminated, suggesting that career concerns affect their forecasting decisions. Using employment data collected from career-related websites (e.g., LinkedIn), we find that 32% of equity analysts that exited the sell-side industry find immediate employment at buy-side institutions. These prospective buy-side analysts do not make less accurate forecasts than analysts who remain in the sell-side industry. In fact, those with superior forecasting ability end up at a hedge fund, a private equity, or a venture capital firm. We find that analysts with prior buy-side experience and specialized education related to the industry they cover are more likely to switch to the buy-side. Buy-side institutions hire a sell-side analyst for her expertise on stocks on which the fund has already held large positions. Our findings suggest that analysts' exit from the sell-side industry is often a voluntary decision resulting from a worker-employer skill matching.

Media Reinforcement in International Financial Markets

Kenneth Froot
,
Harvard Business School
Xiaoxia Lou
,
University of Delaware
Gideon Ozik
,
EDHEC Business School
Ronnie Sadka
,
Boston College
Siyi Shen
,
Boston College

Abstract

We introduce the possibility of a “reinforcement effect” between past returns and media-measured sentiment. When returns and sentiment point in the same direction (either up or down), prices are in the midst of overreacting. Such evidence of overreaction should disappear when returns and sentiment disagree. We find results supporting these views from parallel tests -- across liquid individual stocks, international equity markets, and currencies -- using weekly media scores for each asset culled from extensive data on cross-asset media coverage. Interestingly, the effect is consistently stronger in relatively more liquid assets, assets for which media coverage is relatively broad, and in subsets of media coverage generated by relatively more “local” news outlets. We find that for each of these asset groups, a simple “reinforcement” strategy of buying past losers with low sentiment and selling past winners with high sentiment earns spreads of several hundred basis points annually.
Discussant(s)
Zhi Da
,
University of Notre Dame
Elisabeth Kempf
,
University of Chicago
Kenneth Ahern
,
University of Southern California
JEL Classifications
  • G1 - General Financial Markets