News Sentiment Analysis and Stock Selection Strategies

Lakonishok and Lee (2001) examine whether company insiders earn abnormal returns from their purchasing activity. Similarly Ikenberry, Lakonishok, and Vermielen (1995) investigate whether companies that announce open market share repurchase programs earn abnormal returns in subsequent years. It makes sense to view both kinds of activity in a unified way, as both are indicative of positive sentiment by agents (such as corporate directors) who have a clear informational advantage over other market participants.

In this presentation, Gordon re-examines this classic anomaly in a modern context, by utilizing a real-time news feed from Ravenpack to identify insider transactions and open-market share repurchase programs. He discusses how to recast “insider sentiment news” as a factor in a multifactor model in the style of Ross’ APT, and go on to study the associated Markowitz portfolios.