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The impact of innovation news coverage on illiquid stocks: the case of US market.

Authors :
Fedorova, Elena
Stepanov, Valentin
Source :
European Journal of Innovation Management; 2024, Vol. 27 Issue 5, p1767-1792, 26p
Publication Year :
2024

Abstract

Purpose: The purpose of this study is to determine stock market reactions to the news about innovations and other types of publications for illiquid stocks. Design/methodology/approach: (1) The authors opt for machine learning techniques and expert analysis and propose their own lexicon of innovations based on the news articles published on the professional website; (2) the dataset consists of the data on 2,000 US companies for 6 years; (3) the text analysis including BERT and Top2 Vec models which are superior to Latent Dirichlet allocation (LDA) in information criteria allows for more accurate evaluation of news sentiment and idea; and (4) furthermore, random forest and gradient boosting were applied to increase validity of results and demonstrate factor importance. Findings: (1) The paper presents theoretical findings adding to signalling theory and efficient market hypothesis for US illiquid stocks; (2) this study suggests that information on product innovations (unlike other types of innovations) has a direct and significant effect on the return of illiquid stocks; (3) the results also give evidence that under uncertainty innovation-related publications do not affect the return of illiquid stocks; and (4) the analysis of the news topics (narratives) demonstrates that only the narrative related to important corporate announcements has a positive impact on the return of illiquid stocks. Originality/value: (1) The authors are the first to conduct a large-scale study of the impact of various information on the return of illiquid stocks; (2) the paper focuses on information on several types of innovations with regard to the return of illiquid stocks; (3) based on Top2 Vec model, this study identifies the key topics-narratives discussed by investors and assesses their impact on the return of illiquid stocks; and (4) as an information source, the authors use the sample comprising a total of 1.4m news articles released on the professional website for investors "Benzinga". [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
14601060
Volume :
27
Issue :
5
Database :
Complementary Index
Journal :
European Journal of Innovation Management
Publication Type :
Academic Journal
Accession number :
177603081
Full Text :
https://doi.org/10.1108/EJIM-07-2022-0387