The tone of financial news and the perceptions of stock and CDS traders |
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| Affiliation: | 1. Bain & Company Germany, Karlsrplatz 1, 80799 Munich, Germany;2. U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549, USA;3. Department of Information Systems, Albert Ludwigs Universität Freiburg, Germany;1. Laboratoire Interdisciplinaire des Environnements Continentaux (LIEC), CNRS UMR 7360, Université de Lorraine – Metz, France;2. Biogéosciences, CNRS UMR 6282, Université de Bourgogne – Dijon, France |
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| Abstract: | This paper applies novel sentiment analyses to Reuters news to study stock and CDS traders' differential interpretations of financial news. We construct sentiment measures to identify which news content influences investors' behavior and create dynamic word lists that reflect the divergent viewpoints of CDS and equity investors. We find that (1) equity and CDS traders focus on different content within the same news; (2) traders particularly disagree with respect to news concerning debt topics, especially regarding M&A activity; (3) the Great Recession impacted debt news content and altered the typical inverse relationship between equity and CDS markets on news days. |
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