Shares traded increase for companies mentioned in the FT
Companies that are mentioned in the Financial Times tend to experience an increase in volume of shares traded during the day of their mention, according to a new study conducted by researchers at the University of Warwick, UK.
A total of 1,821 issues of the Financial Times (from early 2007 to late 2012) were included in the analysis led by Merve Alanyali, Suzy Moat, and Tobias Preis.
The team tracked 30 companies on the Dow Jones Industrial Average to see whether their appearance in the news might have any impact on stock market behavior.
They identified an interesting trend. The volume of companies’ shares traded increased onthe day they were mentioned in the Financial Times.
Previous research by Dr Preis revealed that stock market movements (volume of shares traded) can be predicted by looking at the query volume of certain financial search terms on Google.
According to Dr Moat:
“It seems intuitive that trading decisions are affected by news available to a trader – and equally, that big movements in the market can cause big waves in the news. In this study, we were seeking to provide a quantitative description of the relationship between movements in financial markets and developments in financial news.”
Merve Alanyali said:
“We looked at a corpus of six years of daily print issues of the Financial Times, tracking the mentions of companies that form the Dow Jones Industrial Average.
“Interestingly, we found that a greater number of mentions of a company in the news on a given morning corresponded to a greater volume of trading for that company during the same day, as well as a greater change in price for a company’s stocks.”
Dr Preis said that the results of the study are consistent with the hypothesis that news and shares traded in the stock market strongly influence each other.
However, he mentioned that the team “could find no evidence of a relationship between the number of mentions of a company in the morning’s news and the direction of price movement for a company’s shares.”
The researchers concluded:
“Future analyses building on this work will seek to provide further insight into the direction and causality of the relationship between financial news and market movements.”