An Impact Measure for News: It's Use in (Daily) Trading Strategies

Abstract

We investigate how “news sentiment” in general and the “impact of news” in particular can be utilized in designing equity trading strategies. News is an event that moves the market in a small way or a big way. We have introduced a derived measure of news impact score which takes into consideration news flow and decay of sentiment. Since asset behavior is characterized by return, volatility and liquidity we first consider a predictive analytic model in which market data and impact scores are the inputs and also the independent variables of the model. We finally describe the trading strategies which take into consideration the three important characteristics of an asset, namely, return, volatility and liquidity. The minute-bar market data as well as intraday news sentiment metadata have been provided by Thomson Reuters.

Keywords: news sentiment, news impact score, trading strategies, volatility, liquidity

JEL Classification: C22, C44, C53, G01, G02, G32, Z23