(1) While idiosyncratic volatility is typically assumed to capture firm-specific news announcements, little effort has been spent relating the pricing of idiosyncratic volatility to actual firm-specific news announcements.
In this study, we evaluate the limited arbitrage explanation of the pricing of idiosyncratic volatility by examining actual firm-specific news announcements.
Our examination of firm-specific news announcements suggests that the limited arbitrage explanation cannot fully explain the pricing of idiosyncratic volatility.
In this paper, I use recent advances in news analytics to examine the effect of investor attention on share repurchase outcomes and explain managerial "cheap talk." To measure investor attention, I calculate the amount of firm-specific news items in a recently developed news analytics product: The Thomson Reuters News Analytics (TRNA).
H1: High investor attention (measured by the volume of firm-specific news articles) at the time of share repurchase announcements is negatively related to actual repurchase activity following the announcements.
Similarly, Tetlock, Saar-Tsechansky, and Macskassy (2008) find that content in firm-specific news articles is correlated with the returns of individual stocks.
However, we are wary that due to labor and space constraints not all firm-specific news will be covered in the TRNA dataset.
Attributes of News about Firms: An Analysis of Firm-specific News
Reported in the Wall Street Journal Index.
The CDS market is slow to price common information, while it prices firm-specific news at about the same speed as equity markets.
Due to the information generated by their banks' lending activities, they may be well informed about firm-specific news (as discussed by Acharya and Johnson, 2007), but we argue that they may be relatively uninformed with respect to the credit risk implications of market-wide information.
However, opacity can also be costly to insiders because they must also bear the cost of bad firm-specific news.
Given that insiders assume more firm-specific risk in opaque firms, they bear a greater proportion of the risk associated with the arrival of both good and bad firm-specific news. The arrival of bad firm-specific news is costly to insiders and might reach a level such that insiders are unable or unwilling to assume the losses generated by the firm.