News events drive momentum
factor.formula
News event driven momentum factor:
in:
- :
The stock return on the day (trading day) of the ith news event in the past month. This return is usually calculated using the daily logarithmic return, that is, $R_{news_day, i} = ln(\frac{P_{t}}{P_{t-1}})$, where $P_t$ and $P_{t-1}$ represent the closing prices of the day and the previous day, respectively.
- :
The total number of trading days with news events in the past month. It should be noted that multiple news events may occur in one trading day, so only the number of trading days is counted here, and the number of news events in a single trading day is not considered.
factor.explanation
Investors often have limited rationality when processing and digesting information, which can cause them to under-react to new information, resulting in delayed market reactions. At the same time, financial analysts also need time to adjust their earnings forecasts for individual stocks based on news information, further exacerbating this lag effect. Therefore, stock price changes caused by news events often have a certain time lag, forming a momentum effect driven by news events. The construction of this factor aims to capture this market reaction driven by news events with a time lag and quantify it into a factor signal that can be used by the strategy. It is worth noting that the "news event" used here needs to be defined according to the specific situation. For example, only news types that have a significant impact on stock prices can be considered, such as company earnings announcements, mergers and acquisitions, etc.