TheBarclays Capital et al v. Theflyonthewall.com Inc.case highlights the fact that
Wall Street research firms have the ability to create ‘‘material’’ news that moves stock
prices.
Analyst earnings estimates create one of the most material news that exists in the
stock market, comparable only with earnings news releases posted by public companies
themselves.
4.13 Traders may create news
When the price of a stock of a major public company moves significantly, the news
media pick up on that event and report the stock move itself as news.
Stock moves are generated by imbalances that occur in the supply–demand
equilibrium of a particular stock. Therefore, a news report about a significant share-
holder selling a large stake for reasons, which may or may not be related to the
company’s performance, could create the perception that something is wrong with
the company. The same is true about major stake purchases—examples of news media
reports in which successful investors like Warren Buffet or investment houses purchase
large stakes in public companies are perceived as positive news.
Moreover, many traders use technical indicators which show when a particular stock
is ‘‘overbought’’ or ‘‘oversold’’ in the active market. Those technical indicators become
‘‘news’’ for the active traders who watch the stock charts in real time.
4.14 Earnings news releases
In the US, publicly reporting companies are required to file three quarterly reports and
one annual report which are made available for free to the public. Businesses that trade
on the major exchanges release an earnings news article at the same time, which is
usually transmitted via a newswire business such as PR News Wire, Business Wire, or
Market Wire.
To put together such a critical piece of news, corporations invest a considerable
amount of time and money, using multiple resources from top senior managers,
accountants, auditors, legal teams, and investment relations teams.
The earnings news release is a critical moment in the lifecycle of any public company.
This is when investors have an opportunity to re-assess the valuation of the company,
which reflects directly on the value of the stock price.
This is a very time-sensitive piece of news and quickly understanding its potential
impact may be critical for investors and traders alike.
4.15 News sentiment used for trading or investing decisions
The value of news media sentiment centers on the timing and quality of the sentiment
information as well as its practical applications for trading and investment purposes.
There is also an historical value to news sentiment because the correlation between
sentiment data and stock moves may give additional information regarding stock price
sensitivity to news at the moment the news is released to the public.
Measuring the value of media sentiment: A pragmatic view 117