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This website is purely ACADEMIC in nature and NOT a stock market recommendation service or a tip provider. No live data or feeds are provided and all information is historic only. Information is provided for ease of understanding for the purpose of learning. Accuracy of definitions etc is not mantained. I am not a SEBI or IRDA registered.
News and its impact on Stock prices
News, Press releases and Corporate announcements affect stock prices.
Everyone who work in the stock market with an aim of making money, from traders, to short-term and long-term investors, news should be essentially be tracked because they have a direct impact on stock prices and the price moment.
Investors should track news related to the companies they track or invest periodically.
The periodicity of this depends on how frequently you transact in the stock market.
For example, traders need to track almost all news that comes out while a short-term or a long-term investor might track it on a daily or a weekly basis.
Almost all major and minor news will be important for a trader while for an investor, news for their invested companies or only the major headlines will be impacted.
Every news will have an impact on the stock price.
Some news will have an immediate impact while others have a slow gradual impact.
Companies often release news and updates in the form of Corporate Announcements or Press Releases.
It is mandatory for all listed companies to update the Stock Exchange of any materialistic news that will impact stock and its investors.
Press releaes generally influence only on the day of the result to the company stock prices and rarely for a sub-sequent day.
In general, short sellers are successful by combining trading histories with a news database, concluding that short sellers get an edge by analyzing available information.
Positive and Negative Impact of News
The news impact can be positive or negative.
Examples of positive news are: joint venture agreement, securing of new orders, healthy sales numbers, discovery of huge oil reserves in a country, excellent financial results of a company etc.
However, not all positive news will have an immediate positive impact.
For example, certain news could be unofficial, purely speculative and might be disregarded or refuted by the company later as rumours.
In certain other cases, the news might already have been announced some time ago and is only announced now by the company officially. In these cases, the market will already factor in the event and hence the stock price might not move.
In some cases, a negative news will impact on the company negatively at the beginning but will later be taken as a positive news.
Examples of this type of news are firing of a CEO, sacking employees and downsizing so as to cut employee expenses etc.
Global news also will have an impact on domestic stock markets.
For instance, a positive news at home but a negative news globally will ultimately have a negative impact on the home markets.
Negative news will have more quicker impact than positive news.
This is because traders and investors refrain from putting fresh money into stocks and rather will be on wait-and-watch mode.
Negative news in a negative market environment will have stronger impact than a positive news would. This is because investors are already prepared to pull out money at the slightest moment of panic.
A stock that reacts negatively even when there is no negative news per se is likely to have an overturn sooner or later.
On the other hand, a stock with a negative news but one which did not react immediately will show the impact sooner or later.
Behavioral finance studies explained the correlation of various over- and underreactions that cause asset prices to display drifts or reversals.
Some important types of news
- Crude Oil prices
- Government policies
- Political unrest
- Draught or monsoon or such environmental calamities
- Company results
- Global cues
- FII activities
- Mergers and acquisitions
- Insider trading
- Bonus dividends and stock buy backs
- Stock splits
- Rights issue
- Inclusion or exclusion from indexes
- Change or death of top officials, particularly those beloning to the promoter group
- Loss of customers
- Break through deals such as data breaches
- Changes in demand and supply
- Fluctuations in prices of raw materials
- Terrorist attacks
- Joint ventures
- New inventions
- Accounting errors and scandals (Satyam)
An investor with small portfolio can track every news that will possibly impact him easily.
Larger portfolios will require more time in analyzing and by the time we analyze a news and get conclusion, some other corporate news might arrive impacting some other stock.
This process makes it virtuall impossible to track news.
Hence, small portfolios are better than larger portfolios.
- The impact of press releases on stock prices (Research paper)(pdf)
- Which news impacts stock prices? (Research paper)(pdf)
- Factors that can affect stock prices
- Press Releases and Stock Price Movement
- Why do stock prices change following news reports?
- News impact on stock prices
- The impact of news events on market prices
- Limit investments in group companies or subsidiaries (Rule 23)
- Upper Circuit and Lower Circuit (Rule 30)
- Market Timings: Pre-market, Post-market, After Market Order
- Qualitative factors of company in stock investing
- Quantitative factors of company in stock investing
- Market Capitalization
- Sector Diversification (Rule 21)