Financial Analysts Journal Third Quarter 2017 Volume 73 Issue 3
News vs. Sentiment: Predicting Stock Returns from News Stories
The authors used a dataset of more than 900,000 news stories to test whether news can predict stock returns. They measured sentiment with a proprietary Thomson Reuters neural network and found that daily news predicts stock returns for only one to two days, confirming previous research. Weekly news, however, predicts stock returns for one quarter. Positive news stories increase stock returns quickly, but negative stories receive a long-delayed reaction. Much of the delayed response to news occurs around the subsequent earnings announcement.