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The Relationship Between Financial News and the Stock Market

ultimeztabasum@gmail.com Kammy

Abstract

The intricate behavior of the financial market is a result of the decisions of many traders. In this study, we use the vast collection of print issues from The Financial Times beginning on 2 2nd January 2007 to 31 December 2012. December 2012 . We determine the connection between decisions made in the world of finance and the developments in news about financial markets. We discover an unidirectional correlation between the daily volume of companies mentioned on The Financial Times and the volume of transactions that occur daily on the company’s stock on the day prior to the news release as well after the news has been released. Our findings provide quantitative evidence to the notion that the movements in the financial market and those of financial information are inherently linked.

Introduction

The actions of the stock CBLI market influence the lives of many individuals in the financial industry and well beyond. The obvious benefits are an understanding of the behavior of this complicated system. Research towards this goal has been fuelled by the vast amount of data on financial transactions recorded at exchanges, with increasing numbers of studies in complex systems science aiming to analyze1,2,3,4,5,6,7 and model stock market behavior8,9,10,11,12.

The financial transaction data sets represent the final result of a trader’s choice making procedure 13 that is, the decision to purchase or sell a certain stock. The decision-making process can be affected by a variety of factors that a trader’s surroundings. In modern society, our interactions with the Internet are generating large new data sources on our consumption of information14,15,16,17,18. Research has shown that the patterns of search on Google are connected to various indicators of behaviour within the actual world19 for example, reports of the spread of influenza-like diseases20, the prosperity of nations21 as well as other economic indicators like the popularity of destinations for international travel and claims for unemployment.

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Recent research has attempted to determine if data about what users are looking for on the internet can help to understand market trends. Preis, Reith and Stanley presented the first evidence of a connection between internet searches and financial market behaviour, revealing an interaction between the frequency of Google search results for the name of a company and the daily cumulative transactions of the stock of the company in question 23. Preis, Moat and Stanley constructed on this finding by proving that the changes within Google queries for terms associated with finance could be considered an early warning sign of changes in the stock market. 24,. Moat et al. discovered that the visits to Wikipedia pages may be linked to market movements, proving the existence of an increase in the number of views on financial-related Wikipedia pages prior to when the market drops 25,. The evidence also suggests to suggest that Google Trends data can be used to assess the risk associated with investing in the stock 26,.

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However, traders might not only be able to get information from explicit attempts to find information on the internet as well as passively or actively receiving news from large financial news media outlets. Additionally trading activities could trigger events that are reported by financial news. In this research we attempt to measure the relation between the movements of financial news and the movements of financial markets using the six-year archive of news about financial markets.

Results

To study the relation between news from the financial sector and market behavior, we study the daily editions that appeared in The Financial Times from 2 2nd January 2007 until 31 the day of December 2012. Information on what the data was obtained and processed are described within the Supplementary Information.

Financial Times is a daily newspaper that runs from Financial Times is published every day, from Monday to Saturday around 5 at 5 am London time. A preliminary analysis of the main features of the data, as shown in Figure 1 indicates that there are notable variations with regards to the time of publication of Financial Times on different days of the week (median of the total number of words per weekday Monday: 134768.5 Tuesday 112279; Wednesday 112536; Thursday 116690; Friday 111663 Saturday 195492; KH2 = 702.5324, 5 df 5, p > 0.001 (Kruskal-Wallis rank sum test). The Financial Times has shorter issues on Saturdays as compared to the remainder weeks (all Ws > 128,000 and all of which have ps less than 0.001 (pairwise Wilcoxon rank sum test, with Bonferroni corrected = 0.0033) which is a reflection of the release of a special edition for the weekend that is part of The Financial Times. Also, Monday issues that follow the break on Sundays, are much longer than issues from Tuesday to the Friday (all Ws > 111,000 and all with ps > 0.001 (pairwise Wilcoxon rank sum tests using Bonferroni corrected = 0.0033). We have no evidence to suggest to suggest that lengths of the issues vary between Tuesday and the Friday (all Ws < 100,000, all ps > 0.01, pairwise Wilcoxon rank sum tests that have Bonferroni corrected values of 0.0033).

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