Study: News automation by AP increases trading in financial markets

By Francesco Marconi

This year, researchers from Stanford University and the University of Washington evaluated the role of our automated journalism in capital markets. The analysis conducted found compelling evidence that these articles increase firms’ trading volume and liquidity.

In 2014, in collaboration with Automated Insights, we began using algorithms to write earnings reports covering publicly traded companies.

These articles synthesize information from firms’ press releases, analyst reports and stock performance, and are widely disseminated by major news outlets within hours of publication.

“Through automation, we’re providing customers with 12 times the corporate earnings stories as before, including for a lot of very small companies that never received much attention,” said Lisa Gibbs, our global business editor.

Figure 1: AP Earnings Announcement Media Articles over Time. The figure above plots fraction of firms’ earnings announcements receiving an AP reporter-written and automated article, by quarter. The sample includes 4,292 firms and 57,467 earnings announcements.

This year, we collaborated with researchers from Stanford University and the University of Washington to evaluate the role of automated journalism in capital markets. The analysis conducted by professors Elizabeth Blankespoor and Ed deHaan, along with PhD student Christina Zhu, found compelling evidence that automated articles increase firms’ trading volume and liquidity.

“After the articles are published, we see an increase in trading volume that persists three to four days after the story comes out,” explained deHaan, an accounting professor at the University of Washington.

What is the role of the media industry when it comes to investing?

The media contribute to more informed and efficient financial markets by conducting analysis, uncovering corruption and holding executives accountable. Beyond that, news organizations relay facts from public accounting reports to the public through a vast distribution network.

This study found a positive effect between the public dissemination of objective information and market efficiency, a major discovery for the implications of automated journalism on capital markets.

“It’s an exciting first step in what is possible with automation technology,” Blankespoor said. “It’s not about displacing journalists from their jobs — it’s about providing coverage for firms that were not previously in the news.”

Figure 2: Abnormal Volume by Days Relative to Earnings Announcement. The figure above plots the final sample firms’ abnormal trading volume for five days before and after the earnings announcement, separated by companies that began receiving coverage (“treatment” firms) and those that hadn’t (“non-treatment” firms). The sample includes 2,268 firms and 29,821 earnings announcements.

What was the study’s methodology?

The researchers focused on firms that did not have AP articles written about their earnings announcements from 2012 to 2014, before automated coverage started. Within that group, they separated and compared companies that began receiving reports and those that hadn’t.

Blankespoor said that when the researchers controlled for other factors, they found the change in abnormal trading volume and depth was more positive for firms that began receiving coverage than those that hadn’t, “suggesting that automated coverage increases firms’ trading and liquidity around their earnings announcements.”

Francesco Marconi

Francesco was the manager of strategy and corporate development at The Associated Press. He is also an affiliate researcher at the MIT Media Lab and an Innovation Fellow at the Tow Center for Digital Journalism at Columbia University.

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