The Invariance Hypothesis and News: Applying the Microstructure Invariance Hypothesis on the Arrival Rate of News

Abstract: Following the methodology of Kyle et al. (2012) we investigate how the arrival rate of news articles mentioning individual stocks varies with the level of trading activity of the same securities. Defining trading activity W as the product of dollar volume and volatility, we use a sample of 243 stocks belonging to the NYSE and contrast their trading activity along with the corresponding securities' arrival rate of news articles for the same period, using news data from Factiva. Following Kyle et al. (2012), we hypothesize that the news arrival process occurs in "business time" which unfolds at a rate proportional to W to the power of two-thirds, as predicted by the market microstructure invariance hypothesis. We conclude with a dismissal of our hypothesis, as we in our regression models calculate an exponent for W considerably lower than that of two-thirds.