What Types of Events Provide the Strongest Evidence that the ...
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What Types of Events Provide the Strongest Evidence that the Stock Market is Affected by Company Specific News Calum Robertson, Shlomo Geva, Rodney Wolff AusDM2006
Transcript of What Types of Events Provide the Strongest Evidence that the ...
What Types of Events Provide the Strongest Evidence that the Stock
Market is Affected by
Company Specific News
Calum Robertson, Shlomo Geva, Rodney Wolff
AusDM2006
Outline
Introduction Data Methodology Results Conclusions and Future Work
Outline
Introduction Data Methodology Results Conclusions and Future Work
Introduction
The efficient market hypothesis Is stock market an efficient market? Types of News
Macroeconomic news: relatively infrequent, scheduled
Company specific news: more frequent, unpredictable
Purpose of this paper Identify events which occur with a high correlat
ion to the occurrence of real time news
Outline
Introduction Data Methodology Results Conclusions and Future Work
Data – Source and Collecting Period
Source Bloomberg Professional service S&P 100, FTSE 100, and ASX 100
Collecting Period Stock: 1st July 2005 – 1st September 2006 News: 1st May 2005 – 31st August 2006 : the period of data collection : the business time scale
AT
BT
Data – stock dataset
The stock time series
The date time series
The price time series
The volume time series
The tick time series
Data – news dataset
Articles set for a stock (s)
The news time series
Outline
Introduction Data Methodology Results Conclusions and Future Work
Preprocessing (1/3)
The return time series for a stock (s)
The change in volume time series for a stock (s)
Preprocessing (2/3)
The change in ticks time series for a stock (s)
The volatility time series for a stock (s)
Preprocessing (3/3)
Grouped stocks set
Divided time windows
How to define events (1/2)
The Event Point Process (EPP) F – a generalized time series, one of the
return, volume, tick, and volatility time series x – the specified threshold, a threshold of 10%
means that the value should be ≥ log(11/10) or ≤ log(10/11)
How to define events (2/2)
The Event given News Point Process (ENPP)
The Event Without news Point Process (EWPP)
The Ratio of Events Related to News to Events (RERNE)
The Ratio of Events Related to News to Events (RERNE) The probability that the events for the given
parameters are preceded by news, which would imply that news is responsible for these events.
The Likelihood that Events are Related to News (LERN)
The Benchmark A measure of the likelihood of news arriving within
the specified Δτ time.
The Likelihood that Events are Related to News (LERN)
The Event T-Test (ETT)
The Event T-Test (ETT) Test the null hypothesis that the occurrence of
events is not influenced by the occurrence of news
The News T-Test (NTT)
The News T-Test (NTT) Test the null hypothesis that the occurrence of
news before events is the same as the occurrence of news normally
Outline
Introduction Data Methodology Results Conclusions and Future Work
Characteristics of Dataset
Variable US UK AU
Trading Minutes Per Business Day 390 510 360
Trading Minutes Per Typical Business Day Week
1,950 2,550 1,800
Trading Minutes Per Typical Business Day Month
8,125 10,625 7,500
Trading Minutes Per Typical Business Day Year 97,500 127,500 90,000
Average Minutes without a Trade (%) 2.36% 37.65% 50.68%
News Articles in Dataset 293,416 136,627 130,988
Average After Hours News Articles (%) 57.76% 43.22% 76.61%
The Choice of Parameters
Average number of minutes between events - Return
Event Type
Threshold
First Period Rest of Day
US UK AU US UK AU
Return 0.1% 1.14 1..16 1..14 1.36 1.41 1.40
0.2% 1.32 1.35 1.25 1.88 2.02 1.81
0.5% 2.16 2.30 1.85 5.20 6.02 4.90
1.0% 5.27 5.93 3.63 23.34 30.96 20.47
2.0% 23.20 28.64 13.18 187.38 296.73 176.53
5.0% 172.61 452.16 190.78 2,986.46 6,669.99 4,177.65
10.0% 644.54 3,102.39 1,674.15 30,892.04 57,065.47 37,419.38
Average number of minutes between events-Volume
Event Type
Threshold
First Period Rest of Day
US UK AU US UK AU
Volume 10% 1.1 1.1 1.1 1.2 1.1 1.1
20% 1.2 1.2 1.2 1.4 1.2 1.2
50% 1.7 1.7 1.7 2.6 1.6 1.4
100% 3.6 2.7 2.7 7.0 2.5 2.0
200% 13.9 5.3 6.0 35.7 4.8 3.7
500% 80.8 17.4 24.0 269.9 15.0 10.9
1000% 142.8 44.9 74.7 561.4 35.7 27.5
Average number of minutes between events-Ticks
Event Type
Threshold
First Period Rest of Day
US UK AU US UK AU
Ticks 10% 1.2 1.2 1.1 1.3 1.2 1.1
20% 1.6 1.4 1.3 1.8 1.4 1.3
50% 3.6 2.4 2.0 5.2 2.5 1.9
100% 15.2 4.8 4.8 30.8 5.8 4.1
200% 63.0 13.8 22.1 191.4 21.0 15.4
500% 147.8 97.6 280.5 433.9 144.0 117.7
1000% 167.5 533.9 1,417.3 513.2 572.1 360.7
Average number of minutes between events-Volatility
Event Type
Threshold
First Period Rest of Day
US UK AU US UK AU
Volatility 1% 1.0 1.0 1.0 1.0 1.0 1.0
2% 1.0 1.0 1.0 1.0 1.0 1.0
5% 1.1 1.0 1.0 1.3 1.2 1.2
10% 1.8 1.4 1.4 3.0 2.5 2.4
20% 5.8 4.2 3.7 12.9 11.1 9.9
50% 52.4 53.4 40.5 149.9 191.4 148.8
100% 264.7 501.3 401.6 936.3 1,832.4 1,516.9
RERNE and LERN- Return
Event Type
Threshold
RERNE LERN
US UK AU US UK AU
Return 0.1% 29.19% 17.52% 7.01% 101.06% 100.25% 101.84%
0.2% 29.44% 17.80% 6.84% 101.93% 101.87% 99.35%
0.5% 30.64% 18.83% 7.49% 106.08% 107.77% 108.74%
1.0% 34.42% 22.12% 9.80% 119.15% 126.57% 143.24%
2.0% 45.80% 30.90% 19.37% 158.54% 176.86% 281.25%
5.0% 66.35% 55.29% 67.82% 229.66% 316.41% 984.76%
10.0% 60.64% 79.76% 73.44% 209.91% 456.48% 1066.41%
RERNE and LERN- Volume
Event Type
Threshold
RERNE LERN
US UK AU US UK AU
Volume 10% 29.04% 17.37% 6.86% 100.52% 99.41% 99.64%
20% 29.15% 17.26% 6.83% 100.92% 98.79% 99.16%
50% 29.35% 16.88% 6.74% 101.61% 96.60% 97.93%
100% 29.03% 16.23% 6.50% 100.50% 92.91% 94.45%
200% 27.85% 15.08% 5.93% 96.39% 86.32% 86.06%
500% 25.76% 13.64% 5.04% 89.16% 78.07% 73.18%
1000% 22.63% 13.83% 4.83% 78.33% 79.16% 70.19%
RERNE and LERN- Tick
Event Type
Threshold
RERNE LERN
US UK AU US UK AU
Tick 10% 29.19% 17.30% 6.91% 101.04% 98.99% 100.36%
20% 29.51% 17.07% 6.94% 102.15% 97.68% 100.81%
50% 30.51% 16.28% 6.84% 105.62% 93.15% 99.35%
100% 33.03% 14.78% 6.29% 114.33% 84.56% 91.34%
200% 32.75% 12.05% 5.70% 113.35% 68.94% 82.73%
500% 21.22% 10.82% 8.24% 73.47% 61.93% 119.61%
1000% 18.65% 11.80% 13.58% 64.55% 67.55% 197.24%
RERNE and LERN-Volatility
Event Type
Threshold
First Period Rest of Day
US UK AU US UK AU
Volatility 1% 28.90% 17.47% 6.88% 100.05% 100.00% 99.89%
2% 28.96% 17.40% 6.84% 100.24% 99.59% 99.37%
5% 29.48% 17.39% 6.51% 102.06% 99.54% 94.53%
10% 31.01% 17.81% 6.87% 107.35% 101.93% 99.79%
20% 36.36% 21.03% 10.39% 125.87% 120.35% 150.87%
50% 57.31% 37.62% 26.55% 198.37% 215.32% 385.51%
100% 71.13% 61.24% 47.25% 246.23% 350.47% 686.17%
ETT and NTT - Return
Event Type
Threshold
First Period Rest of Day
US UK AU US UK AU
Return 0.1% 87.29% 85.15% 88.81% 97.22% 94.47% 94.46%
0.2% 93.88% 62.19% 66.29% 97.31% 71.68% 71.26%
0.5% 86.30% 42.14% 86.73% 80.35% 14.90% 62.05%
1.0% 55.00% 16.31% 38.16% 8.07% 0.01% 0.00%
2.0% 7.34% 2.02% 4.22% 0.00% 0.00% 0.01%
5.0% 2.15% 0.07% 0.18% 0.00% 0.00% 0.00%
10.0% 25.29% 0.17% 1.17% 5.09% 0.03% 0.38%
ETT and NTT -Volume
Event Type
Threshold
First Period Rest of Day
US UK AU US UK AU
Volume 10% 95.32% 32.23% 88.29% 99.24% 93.65% 98.02%
20% 98.17% 32.21% 83.90% 99.47% 87.16% 94.69%
50% 89.48% 27.67% 84.73% 91.03% 65.75% 86.28%
100% 76.17% 24.78% 73.12% 71.78% 39.02% 55.93%
200% 58.37% 21.54% 51.10% 50.65% 14.75% 8.25%
500% 75.37% 20.21% 25.12% 50.69% 6.16% 0.23%
1000% 77.80% 20.64% 23.18% 86.15% 10.79% 0.28%
ETT and NTT -Ticks
Event Type
Threshold
First Period Rest of Day
US UK AU US UK AU
Ticks 10% 61.02% 49.98% 86.53% 92.69% 87.54% 96.66%
20% 60.42% 47.79% 84.08% 85.10% 72.26% 92.54%
50% 38.56% 47.83% 94.86% 55.47% 34.38% 92.37%
100% 14.21% 47.48% 57.02% 5.52% 12.18% 39.67%
200% 40.53% 45.23% 42.76% 1.84% 11.68% 20.74%
500% 58.37% 50.59% 39.09% 8.91% 97.50% 5.57%
1000% 49.22% 57.04% 2.54% 34.37% 92.87% 0.84%
ETT and NTT -Volatility
Event Type
Threshold
First Period Rest of Day
US UK AU US UK AU
Volatility 1% 36.25% 65.22% 7.26% 99.56% 99.96% 98.78%
2% 47.01% 0.12% 11.14% 98.55% 95.00% 92.48%
5% 93.38% 99.25% 18.48% 95.70% 98.90% 38.24%
10% 99.90% 69.93% 71.52% 99.18% 39.44% 32.14%
20% 63.53% 34.59% 52.36% 2.05% 0.02% 0.00%
50% 10.56% 10.01% 9.26% 0.00% 0.00% 0.00%
100% 13.92% 4.74% 4.57% 0.01% 0.00% 0.00%
Outline
Introduction Data Methodology Results Conclusions and Future Work
Conclusions
The stock market does react to real time news Return and volatility appear to give the most
compelling evidence 5% threshold for all countries 2% and 10% thresholds for the UK and Australian
markets There appears to be some weak evidence that
news effects volume and tick events
Future Work
To determine if volatility events occur differently when the market reaction period is changed
When events and news occur is necessary to establish if the market behaves in a uniform manner
The content of news which the market reacts
Thank you very much
– The End –
