Are institutions informed about news?

This paper combines daily buy and sell institutional trading volume with all news announcements from Reuters. Using institutional order flow (buy volume minus sell volume) we find a variety of evidence that institutions are informed. Institutional trading volume predicts the occurrence of news annou...

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Bibliographic Details
Published in:Journal of financial economics 2015-08, Vol.117 (2), p.249-287
Main Authors: Hendershott, Terrence, Livdan, Dmitry, Schürhoff, Norman
Format: Article
Language:English
Subjects:
Earnings
Earnings announcements
Institutions
Media coverage
Morals
News sentiment
News wire services
Securities markets
Securities trading
Stock exchange
Stock returns
Studies
Trade volume
Trading
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Summary:This paper combines daily buy and sell institutional trading volume with all news announcements from Reuters. Using institutional order flow (buy volume minus sell volume) we find a variety of evidence that institutions are informed. Institutional trading volume predicts the occurrence of news announcements. Institutional order flow predicts (i) the sentiment of the news; (ii) the stock market reaction on news announcement days; (iii) the stock market reaction on crisis news days; and (iv) earnings announcement surprises. These results suggest that significant price discovery related to news stories occurs through institutional trading prior to the news announcement date.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2015.03.007