Hongping Tan

Institutional Trading around Corporate News: Evidence from Textual Analysis

In this paper, we examine institutional trading surrounding corporate news by combining a comprehensive database of news releases for all U.S. firms during 2000 to 2010 with a high-frequency database of institutional trades. We find that institutions trade on the news tone only on the news release day. This news-trading pattern is more pronounced for news related to firm fundamentals, and with a less ambiguous content. News-driven institutional trades result in abnormal returns during the following four weeks. Our results suggest that the trading advantage of institutional investors stems from their ability to process information in a very timely manner.Combining a comprehensive database of news releases during 2000 to 2010 with a large high-frequency database of institutional trades, we examine how institutions trade on the qualitative information embedded in public news releases. We find that institutions trade on the tone of news on the days of news releases but not around news arrivals. That institutions trade speedily on but do not predict qualitative information in corporate news suggests that institutions’ informational advantage, if any, stems mostly from their ability to process information in a highly timely manner.