To simplify and provide a more meaningful analysis we classify news into these two
broad categories, which each contain a further five news types (see Figure 8.1). The
former group includes quarterly earnings announcements, trading updates, and stand-
alone earnings guidance while the latter includes corporate governance issues, product
launches, and M&A news. We include M&A under the softer category rather than
under accounting-related news as this category also refers to newspaper speculation
and company intentions for M&A and asset disposals.
8.2.4 Independence of news
One of the biggest challenges of analysing news flow is the independence of news items.
Companies may announce clusters of news items that fall under different categories
within the same day. For example, a company may announce a profit warning, the
resignation of its CEO, and provide guidance on its sales outlook all on the same day.
Figure 8.2 shows the degree of overlap of news for earnings, guidance, and trading-
related articles. Typically we find that when a company announces guidance, half of the
time the company also reports its earnings.
Rather than separately placing each of these news items into three different news
categories and ignoring the degree of overlap, we develop a hierarchy of news by
identifying all other relevant news for each company on the same day. We have also
obtained a calendar of earnings announcements, corporate guidance, trading updates,
broker conferences, and corporate roadshows so that we can match news to events and
classify news items as either mixed or stand-alone events. Only if a news event occurs
independently of another event do we classify it under its own category as a stand-alone
news event.
The impact of news flow on asset returns: An empirical study 215Figure 8.1.Classification of news (source: RavenPack, Factiva, Factset, Macquarie Quant
Research).