What is news? What firm-specific information releases drive market prices?

This paper identifies the firm-specific information events that drive extreme stock price and trading volume changes employing a novel methodology that is not constrained by an arbitrarily determined set of information events and allows for event anticipation and diffusion delays. We find that no less than 75% of significant price changes and trading volume movements in our sample can be readily explained by public domain information. In addition, we find that a parsimonious set of news categories represent the key drivers. Sell-side analyst stock recommendations and earnings forecast revisions, as a class, unaccompanied by other news releases dominate all other news categories in terms of significant market reaction and explain over 18% of major market-adjusted price changes and 16% of significant trading volume activity. This compares with only 15% of both abnormal price changes and trading volume movements driven by firms’ formal accounting releases. However, taking into account the relative magnitude of market response to different news releases, firms’ formal accounting disclosures dominate within this domain. As such, we conclude these are not fully anticipated by apparently more timely media, and that the existence of news services and the activities of the sellside analyst are not substitutes for a firm’s published accounting results. JEL Classification:G0