Reaction to non-scheduled News During Financial Crisis: Australian Evidence

Abstract

News analytics software applies linguistic algorithms to newswire releases in order to assign a sentiment score; this allows users to comprehend the unstructured data flowing through newswires. I examine the market reaction of leading Australian stocks to stock-specific news flow during the financial crisis of 2007–2009. A high-frequency VAR model with GARCH effects modelled through a VECH(1,1) specification is utilized. I find a significant market impact induced by contemporaneous news items, a significant and positive relationship between volume and volatility, an increase in bid–ask spreads following periods of increased volatility, and evidence of volatility persistence.