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The impact of news flow on asset returns: An empirical study
Andy Moniz, Gurvinder Brar, Christian Davies, and Adam Strudwick
ABSTRACT
Earnings momentum strategies that the majority of systematic equity investors employ typically do not identify the piece of information that initially triggers the change in analyst forecasts. Here we look at higher frequency information contained within corporate news flow as a leading indicator of analyst revisions to understand what type of information causes analysts to revise their earnings expectations, how the informational content of the signal varies according to the news catalyst, and whether investors can use news flow signals as input into their models.
Our results show that news-flow-based strategies can add value to investors. Those that can react quickly can benefit from the short-term momentum following particular news items and gain an information advantage by incorporating news flow ahead of analyst revisions. Alternatively, investors can enhance performance of existing earnings momentum strategies by either combining this with a news flow signal or by trying to forecast which companies are likely to see analyst revisions post news announcements.
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