What Types of Events Provide the Strongest Evidence that the Stock Market is Affected
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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 Outline Introduction Data Methodology Results Conclusions and Future Work Outline Introduction Data Methodology Results

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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


Outline l.jpg
Outline Stock Market is Affected

  • Introduction

  • Data

  • Methodology

  • Results

  • Conclusions and Future Work


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Outline Stock Market is Affected

  • Introduction

  • Data

  • Methodology

  • Results

  • Conclusions and Future Work


Introduction l.jpg
Introduction Stock Market is Affected

  • 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 correlation to the occurrence of real time news


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Outline Stock Market is Affected

  • Introduction

  • Data

  • Methodology

  • Results

  • Conclusions and Future Work


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Data Stock Market is Affected – 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


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Data Stock Market is Affected – stock dataset

  • The stock time series

  • The date time series

  • The price time series

  • The volume time series

  • The tick time series


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Data Stock Market is Affected – news dataset

  • Articles set for a stock (s)

  • The news time series


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Outline Stock Market is Affected

  • Introduction

  • Data

  • Methodology

  • Results

  • Conclusions and Future Work


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Preprocessing (1/3) Stock Market is Affected

  • The return time series for a stock (s)

  • The change in volume time series for a stock (s)


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Preprocessing (2/3) Stock Market is Affected

  • The change in ticks time series for a stock (s)

  • The volatility time series for a stock (s)


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Preprocessing (3/3) Stock Market is Affected

  • Grouped stocks set

  • Divided time windows


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How to define events (1/2) Stock Market is Affected

  • 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)


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How to define events (2/2) Stock Market is Affected

  • The Event given News Point Process (ENPP)

  • The Event Without news Point Process (EWPP)


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The Ratio of Events Related to News to Events (RERNE) Stock Market is Affected

  • 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.


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The Likelihood that Events are Related to News (LERN) Stock Market is Affected

  • The Benchmark

    • A measure of the likelihood of news arriving within the specified Δτ time.

  • The Likelihood that Events are Related to News (LERN)


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The Event T-Test (ETT) Stock Market is Affected

  • The Event T-Test (ETT)

    • Test the null hypothesis that the occurrence of events is not influenced by the occurrence of news


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The News T-Test (NTT) Stock Market is Affected

  • 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


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Outline Stock Market is Affected

  • Introduction

  • Data

  • Methodology

  • Results

  • Conclusions and Future Work


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Characteristics of Dataset Stock Market is Affected


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The Choice of Parameters Stock Market is Affected






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RERNE and LERN- Return Stock Market is Affected


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RERNE and LERN- Volume Stock Market is Affected


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RERNE and LERN- Tick Stock Market is Affected


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RERNE and LERN-Volatility Stock Market is Affected


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ETT and NTT - Return Stock Market is Affected


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ETT and NTT -Volume Stock Market is Affected


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ETT and NTT -Ticks Stock Market is Affected


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ETT and NTT -Volatility Stock Market is Affected


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Outline Stock Market is Affected

  • Introduction

  • Data

  • Methodology

  • Results

  • Conclusions and Future Work


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Conclusions Stock Market is Affected

  • 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


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Future Work Stock Market is Affected

  • 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


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Thank you very much Stock Market is Affected

– The End –


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