First to 'Read' the News: News Analytics and Institutional Trading

We investigate whether providers of high frequency news analytics affect the stock market. As identification, we exploit a unique experiment based on differences in news event classifications between different product releases of a major provider of news analytics. We document a causal effect of news analytics on the market, irrespective of the informational content of the news. Coverage in news analytics speeds up the market reaction in terms of stock price response and trading volume, and increases illiquidity immediately after the article. Furthermore, we document that traders learn dynamically about the precision of news analytics.