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Information, Trading, and Volatility: Evidence from Firm-Specific News
Jacob Boudoukh A (Reichman University), Ronen Feldman (Hebrew University of Jerusalem), Shimon Kogan (Reichman University), Matthew P. Richardson (National Bureau of Economic Research, New York University)
Abstract: What moves stock prices? Prior literature concludes that the revelation of private information through trading, and not public news, is the primary driver. We revisit the question by using textual analysis to identify fundamental information in news. We find that this information accounts for 49.6% of overnight idiosyncratic volatility (vs. 12.4% during trading hours), with a considerable fraction due to days with multiple news types. We use our measure of public information arrival to reinvestigate two important contributions in the literature related to individual |$R^{2}$|s of stock returns on aggregate factors. Received February 24, 2016; editorial decision May 19, 2018 by Editor Andrew Karolyi.