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News and Idiosyncratic Volatility: The Public Information Processing Hypothesis*
Journal of Financial Econometrics ( IF 1.8 ) Pub Date : 2020-12-21 , DOI: 10.1093/jjfinec/nbaa038
Robert F Engle 1 , Martin Klint Hansen 2 , Ahmet K Karagozoglu 3 , Asger Lunde 4
Affiliation  

Abstract
Motivated by the recent availability of extensive electronic news databases and advent of new empirical methods, there has been renewed interest in investigating the impact of financial news on market outcomes for individual stocks. We develop the information processing hypothesis of return volatility to investigate the relation between firm-specific news and volatility. We propose a novel dynamic econometric specification and test it using time series regressions employing a machine learning model selection procedure. Our empirical results are based on a comprehensive dataset comprised of more than 3 million news items for a sample of 28 large U.S. companies. Our proposed econometric specification for firm-specific return volatility is a simple mixture model with two components: public information and private processing of public information. The public information processing component is defined by the contemporaneous relation with public information and volatility, while the private processing of public information component is specified as a general autoregressive process corresponding to the sequential price discovery mechanism of investors as additional information, previously not publicly available, is generated and incorporated into prices. Our results show that changes in return volatility are related to public information arrival and that including indicators of public information arrival explains on average 26% (9–65%) of changes in firm-specific return volatility.


中文翻译:

新闻与特质波动:公共信息处理假说*

摘要
受到最近广泛的电子新闻数据库的可用性和新的经验方法的推动,人们对研究金融新闻对单个股票的市场结果的影响重新产生了兴趣。我们建立了收益波动率的信息处理假设,以研究企业特定新闻与波动率之间的关系。我们提出了一种新颖的动态计量经济学规范,并使用采用机器学习模型选择程序的时间序列回归对其进行了测试。我们的经验结果基于一个全面的数据集,该数据集包含28个美国大型公司的样本中的300万条新闻。我们针对公司特定收益波动率提出的计量经济学规范是一个简单的混合模型,包含两个部分:公共信息和公共信息的私有处理。公共信息处理部分是由与公共信息和波动性的同时关系定义的,而公共信息部分的私有处理被指定为与投资者的顺序价格发现机制相对应的一般自回归过程,作为以前无法​​公开获得的附加信息,生成并合并到价格中。我们的结果表明,收益波动率的变化与公共信息的到达有关,并且包括公共信息到达的指标平均可解释企业特定收益率波动的平均26%(9–65%)。公共信息组件的私有处理被指定为与投资者的顺序价格发现机制相对应的一般自回归过程,因为生成了以前不公开可用的附加信息并将其合并到价格中。我们的结果表明,收益波动率的变化与公共信息的到达有关,并且包括公共信息到达的指标平均可解释企业特定收益率波动的平均26%(9–65%)。公共信息组件的私有处理被指定为与投资者的顺序价格发现机制相对应的一般自回归过程,因为生成了以前不公开可用的附加信息并将其合并到价格中。我们的结果表明,收益波动率的变化与公共信息的到达有关,并且包括公共信息到达的指标平均可解释企业特定收益率波动的平均26%(9–65%)。
更新日期:2020-12-21
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