Read All About It: News Interpretation and Price Efficiency across the Capitalization Spectrum

The authors analyze the same news corpus using five lexicons, ranging from finance-adapted to general-purpose, and find dramatically different economic signals. Finance-adapted lexicons generate strong, correctly signed returns, whereas a general-purpose dictionary inverts the signal. Large-cap stocks absorb news by the event day, but mid- and small-cap stocks exhibit large persistent post-news drift, accompanied by persistently elevated abnormal volume—jointly consistent with gradual information diffusion. This delayed adjustment occurs among vetted index constituents, rather than opaque micro-caps. An earnings decomposition shows that the drift is driven primarily by non-earnings news, indicating that the effect extends beyond classical post-earnings-announcement drift.