How news affect the trading behavior of different categories of investors in a financial market

TL;DR

This study analyzes how different investor categories in a liquid stock market respond to endogenous factors like returns and volatility, and exogenous factors such as news volume and sentiment, revealing varied sensitivities across groups.

Contribution

It provides a detailed comparison of how various investor types are differently influenced by endogenous and exogenous market factors, using empirical data and sentiment analysis.

Findings

Households and companies are highly sensitive to both endogenous and exogenous factors.

Governmental and non-profit organizations show weak sensitivity to news and market fluctuations.

Financial institutions and foreign investors exhibit intermediate sensitivity levels.

Abstract

We investigate the trading behavior of a large set of single investors trading the highly liquid Nokia stock over the period 2003-2008 with the aim of determining the relative role of endogenous and exogenous factors that may affect their behavior. As endogenous factors we consider returns and volatility, whereas the exogenous factors we use are the total daily number of news and a semantic variable based on a sentiment analysis of news. Linear regression and partial correlation analysis of data show that different categories of investors are differently correlated to these factors. Governmental and non profit organizations are weakly sensitive to news and returns or volatility, and, typically, they are more correlated with the former than with the latter. Households and companies, on the contrary, are very sensitive to both endogenous and exogenous factors, and volatility and returns are, on average, much more relevant than the number of news and sentiment, respectively. Finally, financial institutions and foreign organizations are intermediate between these two cases, in terms of both the total explanatory power of these factors and their relative importance.