Abstract
Combining a large archive of public corporate news events with retail trading records from NYSE, we examine the profitability of individual investors’ trades around public news releases. We find that individual investors benefit significantly from the news releases when trading. The relation between net trading by individual investors and future returns is four times as large on positive news days as that on no news days. Moreover, the results are more pronounced for firms with higher information uncertainty and at times of high market uncertainty. Individual investors do not anticipate news and our results are not explained by liquidity provision, higher investor attention, or changes in liquidity around news days. Overall, the evidence suggests that an important channel through which individual traders predict future stock returns is their ability to successfully process the information revealed in the news events.
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