Abstract

This study explores the relationship between public information and Canadian stock market activity. Headlines of stories published by Canada Newswire from 1999 through 2003 were indexed and characterized by content and timing of release and then associated with measures of market activity, such as daily return, the number of transactions, and the volume of trade on the Toronto Stock Exchange, for both a broad index and individual companies. While strong patterns in the way news is released are not evident, there is systematic seasonal and daily variation. About 12% of the variation in the volume of trade and 3% of the variation in average daily return can be attributed to the flow of all news as measured by the number of stories released, but these numbers drop sharply when the flow of news is restricted to the number of headlines mentioning company names. The first finding suggests that news is uncertainty or divergence of opinion which results in more trade but the effect on the market is largely netted out. The second suggests that markets do respond to general news and not just firm-specific news, a vindication of sorts for market efficiency, but that most trade remains unexplained.