Numerous empirical studies have demonstrated that asset prices react rapidly, if at all, to news published in the mass media. In many cases, the information has been discounted and prices have already moved upon primary publication through news wires, press releases or firm announcements. Any remaining information is usually quickly priced in after dissemination through the mass media. But not always: Often enough delayed price adjustments, underreactions as well as overreactions, can be observed after particular news reports have been published. This points to inadequacies in the efficient markets hypothesis as well as in Behavioral Finance theories: Delayed reactions appear too often to be explained away as "anomalies" within models of rational pricing. But they appear too eratically to be explained as "normalities" such as in newer models of systematically irrational pricing. In other words: Asset prices frequently do not react to news published in the media. Sometimes they do. The evidence leads to the following conclusion: That markets can be efficient and inefficient at the same time.

We study stock holdings and trading behavior of more than 60,000 households and find evidence consistent with dividend clienteles. Retail investor stock holdings indicate a preference for dividend yield that increases with age and decreases with income, consistent with age and tax clienteles, respectively. Trading patterns reinforce this evidence: Older, low-income investors disproportionally purchase stocks before the exdividend day. Furthermore, among small stocks, the ex-day price drop decreases with age and increases with income, consistent with clientele effects. Finally, consistent with the behavioral “attention ” hypothesis, we document that older and low-income investors purchase stocks following dividend announcements. MORE THAN 40 YEARS AGO Miller and Modigliani (1961) argued that dividend clienteles could form based on investor characteristics. According to their hypothesis, firms that pay lower (higher) dividends attract investors who dislike (like) dividend income, and this creates the potential for an optimal match between the dividend policy of a firm and the dividend preferences of its stockholders.

We examine how the amount and configuration of firm-specific news events affects inferences about the informativeness of eight types of firm-specific announcements. After establishing that confounding news events are neither infrequent nor random around these announcements, we investigate how the presence of confounding news events affects measures of announcement period market reactions. We find that the residual variation of asset pricing models (that are used to extract systematic components of returns) are largely unaffected by confounding news events. This aggregate result does not, however, extend to inferences about the informativeness of specific announcements. In particular, while conclusions about the statistical significance of market reactions to firm-specific announcements remain largely intact for most of the events that we consider, the magnitudes of those reactions (that is, their economic significance) are reliably smaller in absolute terms once we control for confounding news events. Preliminary; please do not quote.

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We use quantitative news data generated by a large-scale natural language processing (NLP) news analysis system to perform a comprehensive study on how a company’s reported news frequency, sentiment polarity and subjectivity anticipates or reflects its stock trading volumes and financial returns. Our analysis provides concrete evidence that news data is highly informative, as previously suggested in the literature – but never studied on our scale of over 500 newspapers daily for over four years. Building on our findings, we give a news-based market-neutral trading strategy which gives consistently favorable returns with low volatility over a four year period (2005-2008). Our results are significant in confirming the performance of general sentiment analysis methods over broad domains and sources. 1

This paper explores a unique dataset gathered via Bloomberg during the early stages of the recent financial crisis. Unlike previous literature that has often used information on headlines as a metric for news, the dataset here contains information on readership and therefore provides a glimpse into the extent to which financial market participants were focused on the news of a particular firm as the financial crisis unfolded. By examining the news that captured the attention of these participants and exploring its relationship to bank returns, this paper addresses the role that market news and reputation may have had in shaping perception during the crisis. There is strong evidence that firms whose news elicited higher readership suffered significantly lower returns than those that did not, both contemporaneously and subsequently. Those banks that on average had relatively high readership interest, or that ranked highly in readership interest a large proportion of the days in the sample, on average had returns that were about 20 percentage points lower than banks that remained relatively out of the spotlight. In addition, greater news readership is associated with higher volatility of returns. A model portfolio that each day is short the ten banks ’ stocks that were in the top readership rankings the previous day and long the other stocks generates a cumulative P&L of 1.45 % in the run-up to the crisis; during the same time period the S&P 500

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I investigate variation in how well firm-initiated disclosures are transmitted to investors. Improved dissemination is hypothesized to lower the cost of information acquisition and increase firm visibility. Through instrumentation, I examine the impact of differential dissemination of firm-initiated disclosures by the press on bid-ask spreads, trading volume, and idiosyncratic volatility. I find that improved transmission causally lowers bid-ask spreads, increases trading volume, and lowers idiosyncratic volatility. Ultimately, the results suggest that the economic impact of a firm’s disclosure program is affected by both the level of disclosure and the effectiveness of mechanisms in distributing firm-initiated information to investors. This paper is based on my doctoral dissertation. I would like to thank my committee members, Douglas Skinner (chair), Christian Leuz, Abbie Smith, and Suraj Srinivasan, for their many insightful comments and suggestions. I

This paper investigates the role of corporate governance on regulatory compliance and the performance of Italian corporate insider trading. Exploiting a unique enforcement and reporting framework, we present three main findings. First, corporate governance does not influence the propensity of firms to comply with insider trading regulation. Firms that have concentrated ownership and control, together with those run by families and cooperatives are most likely to comply with regulation. Second, multiple trading, but not transaction size, affects the performance of corporate insider trading. Third, the market responds less to reporting by compliant and family firms.

Using an extensive panel of cross-border M&A transactions between 1990 and 2007, we find that firms from developing countries (versus those from developed countries) bid higher on average to acquire assets in developed countries. We are interested in why these higher bids occur. We find that bids of firms from developing countries are higher in cases where the transaction displays “national pride” characteristics, where national pride is identified through a manual examination of media articles. These results, which are robust to numerous specifications and control variables, highlight a source of pride beyond personal hubris which potentially influences corporate decision makers.