Equities
The Impact of Public Information on the Stock Market
July 1, 1994
Topics - Equities
In this article, we ask whether the amount of information that is publicly reported affects the trading activity and the price movements in securities markets. The underlying motivation for our analysis is the fact that much of the behavior of financial markets is difficult to explain using conventional models of information and trading.
We study the relation between the number of news stories reported daily by Dow Jones and measures of market activity, including trading volume, the absolute value of market returns and the sum of the absolute value of firm-specific returns. We find that the number of news stories and market activity are directly related and share common day-of-the-week patterns. The relation between news and market activity remains significant in regressions that control for the day of the week.
The relation between public information and market activity is also robust to analysis that includes two proxies for news importance — the size of New York Times headlines and a dummy variable for days having at least one of 17 major macroeconomic announcements. The days having large New York Times headlines have market returns of above-average magnitude, while trading volume on those days is not significantly different than that for the full sample. Neither trading volume nor market returns is significantly different on days having macroeconomic announcements.
This document is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein.
This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and AQR Capital Management, LLC (“AQR”) to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. This document is not to be reproduced or redistributed to any other person. The information set forth herein has been provided to you as secondary information and should not be the primary source for any investment or allocation decision. Past performance is not a guarantee of future performance. Diversification does not eliminate the risk of experiencing investment losses.
This material is not research and should not be treated as research. This paper does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of AQR. The views expressed reflect the current views as of the date hereof and neither the author nor AQR undertakes to advise you of any changes in the views expressed herein.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Charts and graphs provided herein are for illustrative purposes only. The information in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, neither AQR nor the author guarantees the accuracy, adequacy or completeness of such information. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such. Diversification does not eliminate the risk of experiencing investment losses.
The information in this paper may contain projections or other forward-looking statements regarding future events, targets, forecasts or expectations regarding the strategies described herein, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved, and may be significantly different from that shown here. The information in this document, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.