Monday, July 16, 2007

More on news-driven trading

For readers who are interested in news-driven trading, here is another article. This article pointed out a contrarian view offered by Richard Oldfield, a fund manager, who says “price movements in response to news are exaggerated, providing an opportunity to those who do not base too much on what has happened in the last hour or 24 hours.” [my italics] I am not sure whether Mr. Oldfield's statement is based on any statistical research or not -- as far as I can ascertain, his book "Simple But Not Easy” cannot be purchased anywhere in North America. However, I should point out that this statement is in contradiction to an abundance of research done on Post Earnings Annoucement Drift (PEAD): the phenomenon that stocks with positive earnings news continue to trend up for a long time. Furthermore, if indeed price movements in response to news are exaggerated (contrary to the findings of PEAD), it would seem to suggest a reversal trade rather than suggesting that the news can be ignored!