wherem32 andhN 1 ;:::;Nmiis a sequence of news stories aboutCoccurring over at
least one month with a relevance score of 100.
Remark 2.The phrase ‘‘universe of stocks’’ is understood here to be a set of pairs,
where in a pair one item is a security and the other item is an associated event date.
Universe sizes are further reduced by establishing a market cap minimum. This is an
entirely practical consideration, seeing as money managers with sufficiently large assets
would not likely run a small-cap concentrated portfolio. We stipulate the market cap
minimum to be $500 million. Of course, $500 million today is not what it was 20 years
ago. To address this issue of historical market cap, we deflate the minimum back in time
via the percentage change of the S&P 500 index. In particular, suppose there is a
sentiment reversal on dated, then ifp 1 andp 2 are the closing prices of the S&P 500
index on December 31, 2008 andd(respectively), it is included in the universe if its
market cap as ofdis larger than
500 millionþð500 millionÞððp 2 p 1 Þ=p 1 Þ:We justify the imposition of this minimum as follows. Assume, for the sake of argument,
236 News and abnormal returns
Figure 9.1.Stylized depiction of a sentiment reversalhN 1 ;:::Nmiwherep 1 andp 2 are the closing
stock prices on dateðN 1 Þand dateðNmÞ, respectively.