The Determinants of Information Processing of News and the Resulting Speed of Price Reaction in Financial Markets

• Applicant: Harm Schuett, Ph.D.
• Subject Area: Accounting and Finance
• Term: from 2015 to 2018
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 277689232

The purpose of this project is to provide new evidence on how investors process information and on the resulting speed of price reaction to news in financial markets. Prior literature has established the presence of investor inattention and information assimilation cost. Yet, the underlying sources of inattention as well as the interplay of inattention and information assimilation cost within the broader information processing mechanism are still poorly understood. I propose the construction of a new dataset that approximates a representative sample of the complete online news sphere. Based on this data, I further propose an empirical framework for separating the effects of attention as a filtering mechanism from effects of information assimilation cost on the speed of news processing. The framework also serves to structure empirical tests of the impact of different news types and attributes on the news processing mechanism. Since efficient information processing is a cornerstone of well-functioning markets, the results of this project should be of considerable interest to academics, practitioners and regulators alike.

• DFG Programme: Research Grants