STOCK MARKET

Impact of News on Stock Prices

Impact of News on Stock Prices

Introduction

Stock prices, according to many researchers, are predictable. This conclusion is pushing many laws discovered by scientists on real empirical data of many stock markets around the world. These laws include, for example, a return to average in the week and long-term (3-5 years) intervals and drift at intervals over 12 months. Some studies have also established the fact of the drift in stock prices after the announcement of major corporate events. However, if the stock price is predictable, i.e. market is clearly responding to a specific event, then traded companies can use these laws to their advantage, namely to control the price of its shares, or at least know in advance what effect will follow one or another of its decision or announcement. One of the channels and, perhaps, the most important channels of information space of the company and the market is the announcement of corporate news. Study the influence of corporate news announcements on the price of shares the subject of many studies (Takahashi, 2007, 1339-1345).

However, the task of describing the influence of complex corporate news, the market value of the company is very difficult, but not less attractive from the standpoint of practical application. For this reason we undertook this task and decided to bring together all the studies in order to obtain the most complete answer to this question. Of course, the process of consolidating the results of research was not mechanical. First, to create a generalized model, we selected only those studies that used the correct method and correct sampling. Second, when considering the various studies in the complex there is a synergistic effect - similar to how to collect an image from individual elements, even when they lack, we understand that shown in the picture, and just about imagine what is shown on the missing elements (Tetlock, 2008, 1437-1467).

Discussion

Early studies of market efficiency suggest that at any given time, security prices fully reflect all available information. Thus, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else, therefore only unanticipated information can push the prices. By the definition of Fama (1991) the efficiency of a market can be classified by the type of information reflected by the prices. Weak form efficiency states that all past prices, returns and other technical information of a stock are reflected in securities price (i.e. technical analysis cannot be used to predict and beat a market). Semi-strong form efficiency claims that all public information is reflected in securities' current price (i.e. neither fundamental nor technical analysis can be advantageous to gain abnormal return. The efficient market hypothesis does not argue, that abnormal return gains when new information comes, but argues that these information can be anticipated, therefore no one can earn higher return than the normal (Liang, 2006, 919-930).

The impact that stock market news on events happening on the ...