The stock market ignores the real signal in news for 18 months

Researchers found that the stock market consistently misses important signals hidden in news articles. They discovered that if you remove the predictable parts of news, the remaining "news shocks" can predict stock returns for up to 18 months.

Financial theory has long debated how quickly markets absorb new information. This paper shows that even after accounting for what's already known, a significant part of news is still mispriced by the market. This means quantitative trading firms can now build models that extract a powerful, long-lasting signal from news that ordinary investors and even many professional traders miss.