The effect of news and public mood on stock movements

• Analyze the mechanism of information percolation on stock markets.
• Media influence on stocks varies firm characteristics and article content.
• Public information presents profitable trading opportunities.
• Public sentiment from discussion boards affects stock prices.

With technological advancements that cultivate vibrant creation, sharing, and collaboration among Web users, investors can rapidly obtain more valuable and timely information. Meanwhile, the adaption of user engagement in media effectively magnifies the information in the news. With such rapid information influx, investor decisions tend to be influenced by peer and public emotions. An effective methodology to quantitatively analyze the mechanism of information percolation and its degree of impact on stock markets has yet to be explored. In this article, we propose a quantitative media-aware trading strategy to investigate the media impact on stock markets. Our main findings are that (1) fundamental information of firm-specific news articles can enrich the knowledge of investors and affect their trading activities; (2) public sentiments cause emotional fluctuations in investors and intervene in their decision making; and (3) the media impact on firms varies according to firm characteristics and article content.