Nitish Ranjan Sinha

Underreaction to News in the US Stock Market

Using a score that quantifies the tone of news articles, I construct a weekly measure of qualitative information that predicts returns over the next 13 weeks. A portfolio long stocks with past positive tone and short stocks with past negative tone has an average return of 16.54 basis points per week (8.60% per year). The findings suggest the market underreacts to the content of news articles. The underreaction is not constrained to small stocks, low analyst-coverage stocks, low institutional ownership, or loser stocks. The findings also suggest the tone of news articles is different from sentiment which is assumed to have no permanent impact on stock prices.

News versus Sentiment: Predicting Stock Returns from News Stories

This paper uses a dataset of over 900,000 news stories to test whether news can predict stock returns. It finds that firms with no news have distinctly different average future returns than firms with news. We measure sentiment with the Harvard psychosocial dictionary used by Tetlock, SaarTsechansky, and Macskassy (2008), the financial dictionary of Loughran and McDonald (2011), and a proprietary Thomson-Reuters neural network. Simpler processing techniques predict short-term returns that are quickly reversed, while more sophisticated techniques predict larger and more persistent returns. Confirming previous research, daily news predicts stock returns for only 1-2 days. But weekly news predicts stock returns for a quarter year. Positive news stories increase stock returns quickly, but negative stories have a long-delayed reaction. JEL–Classification: G12, G14This paper uses a dataset of more than 900,000 news stories to test whether news can predict stock returns. We measure sentiment with a proprietary Thomson-Reuters neural network. We find that daily news predicts stock returns for only 1 to 2 days, confirming previous research. Weekly news, however, predicts stock returns for one quarter. Positive news stories increase stock returns quickly, but negative stories have a long delayed reaction. Much of the delayed response to news occurs around the subsequent earnings announcement.

Strategic Release of News at the EPA

Using advances in text analysis, we examine the content and timing of 21,493 press releases issued by the U.S. Environmental Protection Agency (EPA) between 1994 and 2009. Press releases announcing enforcement actions or regulatory changes were issued more often on Fridays and before holidays, a time when news has the least impact on media coverage and financial markets. Changing the timing of press releases may increase deterrence through awareness of regulation and market reaction to environmental news. We find no evidence of regulatory capture. We compare text analysis techniques that allow data collection from sources previously too expensive to access.

Increasing Shareholder Value? A Study of Share Repurchases

We consider motivations for firm share repurchases using the financial crisis of 2008-2009 as a unique instrument which induces a shock to firm profitability while being exogenous to the firm. We find that many classical hypotheses about buybacks are not supported by the data: Buybacks are often not used in the flexible manner that would be suggested by their requiring no formal commitments; buybacks are not always the first payout method to be eliminated; and, buybacks do not always increase shareholder value. Buybacks are also sometimes accompanied by firms increasing their risk. Finally, we explore whether buybacks might be used to defend against hostile acquirers and whether buybacks might present agency issues. We find that buybacks are used to defend against hostile acquisitions. Further, we find that buybacks present significant agency issues and can even allow for direct transfers of wealth from the firm to management.