A Transformation in Financial Information
Information is the raw material for any investment or trading strategy,
and technology can radically alter the information landscape. More
than a century ago, a new technology - Transatlantic Telegraph Cables -
had a major impact on the functioning of financial markets by suddenly
bringing the prices of securities between New York and London in line with
one another. The Internet may offer a similar revolution in communication
and may influence financial markets. Recent years have witnessed the creation
of new means by which information, opinions and analyses can be shared
among investors. Information frictions are dramatically reduced. Information
is impounded in prices much faster.
Press releases used to be read by editors, now they are read by everyone.
Local newspapers were read locally, now everything is global. Information
sharing used to occur within small groups, now there are hundreds of millions
of people reading and writing messages on the “Internet wall”.
Since the late 90s, we have seen an astonishing growth of freely accessible
information on the Net, an equally astonishing growth in the number of
people able to act on this information. There is more and more information
(and disinformation) available, and with over 20 million online brokerage
accounts, it is impounded in prices at ever increasing speeds. This
transformation is dramatic.
The e-Information Project
Hundreds of articles on the informational efficiency of financial markets
have been published over the past quarter century in major finance and
accounting journals. However the changes brought about by the net
have created new opportunities to learn from empirical examination of the
information in markets and the relationship of this information to the
price formation process, to returns, to volatility, volume, and liquidity.
Which types of information events lead market response, which types are
responses to market activity?
The e-Information group brings together computer scientists and financial
economists with the goal of reaching an understanding of the new media
for information transmittal and the relationships between market and information.
In particular, Internet-based stock message boards provide a real time
window into the minds of some individual investors. Our research team,
among others around the country, is seeking to understand how this new
technologically-enabled form of communication works. Our research
seeks to understand the salience of what we call "e-information": investor
sentiment and disagreement, extracted from the Web using statistical language
Below you will find some of our preliminary work, as well links to related
commercial and academic work. We are currently working on the construction
of a large dataset to test a variety of intriguing propositions about e-information
and the stock market. If you find other related links, let us know and
we can post them for other researchers to share.
Sanjiv Das, Santa Clara
J. Leinweber, California Institute of Technology
de Asis Martinez-Jerez, Harvard Business School
Tufano, Harvard Business School
Sanjiv Das, Asis Martinez-Jerez, and Peter Tufano. In this clinical
study, we create a new micro-database of much of the information flow about
four stocks for a period of six months, including a novel database of e-Information.
We define e-Information as estimates of the intensity and dispersion of
investor sentiment extracted from four major stock chat message boards.
We combine this e-Information with other components of the traditional
information set (formal press releases by the firms, filings, analyst revisions,
and news stories available electronically) to create an intensive database
of as close to the full information flow as is practical. We document certain
patterns in the release of information and show that there are suggestions
of links between our measure of e-Information and contemporaneous stock
returns and implied volatility. While e-Information does not seem to predict
subsequent stock price returns, it may be related to the implied volatilities
taken from options prices. (Revision dated November 2001)
"Yahoo! for Amazon: Opinion
Extraction From Small Talk on the Web" Sanjiv Das and Mike Chen.
This paper describes the algorythm used to extract sentiment from the web.
In addition to the paper, additional resources are given below.
hundred years of stock market manipulation," David Leinweber and Ananth
Madhaven, The Journal of Investing 10 (7/Summer 2001), 7-16. This
paper shows how stock chat boards can be used to manipulate stock prices.
Selected related research:
Commercial sites seeking to understand how e-information works:
Antweiler, W. and Murray Frank, 2001, Is
all that talk just noise? The information content of internet stock message
boards, unpublished manuscript
"Catching the Buzz," Scientific American, November 2001, 30-32
M. Hirshey, V. Richardson, & S. Scholz, "How
Foolish are Internet Investors?" Financial Analysts Journal, Jan/Feb
Tumarkin, Robert and Robert Whitelaw, 2001, "News or Noise? Internet message
board activity and stock prices," Financial Analysts Journal 57,
Wysocki, Peter, 1999, Cheap
talk on the Web: The determinants of postings on internet stock message
boards, unpublished manuscript
The AEnalyst Project,
by Victor Lavrenko, Matt Schmill, Dawn Lawrie and Paul Ogilvie, UMass Computer
Science Department. This group is extracting sentiment from news