Media attention and stock returns

Peter Hafez, Chief Data Scientist at RavenPack, discusses how levels of news volume on publicly traded companies can be measured and how stocks with ‘abnormal’ levels of news volume are more likely to experience strong price movements.

Hafez goes on to show how such information can be used to improve portfolio performance. He creates portfolios made up of stocks with extreme sentiment and abnormally high news volume (high ‘Event Buzz’) and compares them to an appropriate benchmark. He finds annualised returns improve from 9.6% to 15.5% for large and mid-cap portfolios and from 25.2% to 45.5% for small-cap portfolios. Moreover, Hafez says the Information Ratio increases from 1.74 to 2.04 for large and mid-cap portfolios and from 2.73 to 3.68 for small-cap portfolios.

Read the full report.