Abstract
Behavioral research increasingly endorses Information Systems~(IS) methodologies to empirically study information processing. One intriguing application is the asymmetric processing of information as described by prospect theory; according to which negative information outweighs positive. We test this asymmetric information processing by measuring the influence of news sentiment on stock prices for different investor types. Methodologically, we perform a Kalman decomposition of prices into a fundamental price (representing informed investors) and a noise residual (representing uninformed investors). We then run quantile regressions on both investor types. Our findings suggest that both informed and uninformed traders process information asymmetrically. However, in contrast to prospect theory, we do not find strong evidence that negative information dominates positive information.
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