News impacts stock prices through more than transient sentiment, paper finds

federal reserve

News affects stock prices, but not solely due to transient sentiment or liquidity, a working paper published by the Federal Reserve Board has found.

In News versus Sentiment: Predicting Stock Returns from News Stories, Steven Heston and Nitish Sinha explore how useful textual processing is for predicting returns. They use a dataset of more than 900,000 news stories.

The authors finds there is predictability, but it lasts only a few days when news is measured over a day. But when news is

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