Institutional Trading around Corporate News: Evidence from Textual Analysis

Published: 15 June 2021

Authors: A.G. Huang, Hongping Tan, and R. Wermers

Publication: The Review of Financial Studies, Volume 33, Issue 10, October 2020, Pages 4627-4675.


We examine institutional trading surrounding corporate news by combining a comprehensive database of newswire releases on U.S. firms with a high-frequency database of institutional trades. To identify the ability of institutions to predict or quickly interpret news, we form “news clusters” of related news about a particular firm that occurs in rapid succession. We find that institutions chiefly trade on the tone of news directly after the earliest news release in a cluster, and such news-motivated trading predicts returns over the following weeks. Our results suggest that institutional investors contribute to price efficiency through the speedy interpretation of public information.

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