Financial Engineering Seminar with Paul Glasserman

Abstract

Over the past 30 years, nearly all the gains in the US stock market have been earned overnight, while average intraday returns have been negative or flat. We find that a large part of this effect can be explained through features of intraday and overnight news. Our analysis uses a collection of 2.4 million news articles. We apply a novel technique for supervised topic analysis that selects news topics based on their ability to explain contemporaneous market returns. We find that time variation in the prevalence of news topics and differences in the responses to news topics both contribute to the difference in intraday and overnight returns. In out-of-sample tests, our approach forecasts which stocks will do particularly well overnight and particularly poorly intraday. Our approach also helps explain patterns of continuation and reversal in intraday and overnight returns. We contrast the effect of news with other mechanisms proposed in the literature to explain overnight returns. This is joint work with Kriste Krstovski, Paul Laliberte and Harry Mamaysky.

Biography

Paul Glasserman is the Jack R. Anderson Professor of Business at Columbia Business School, and currently serves as chair of the Financial and Business Analytics Center within Columbia University's Data Science Institute. He is a past recipient of the IAQF Financial Engineer of the Year Award and Risk magazine's Quant of the Year Award. He received the INFORMS Lanchester Prize for his book, Monte Carlo Methods in Financial Engineering. Paul was named the 2020 Financial Engineer of the Year by the International Association for Quantitative Finance. His publications include the book Monte Carlo Methods in Financial Engineering (Springer, 2004), which received the 2006 Lanchester Prize and the 2005 I-Sim Outstanding Publication Award. faul serves on the editorial boards of Operations Research, Mathematical Finance, and Stochastic Systems. Paul was senior vice dean of Columbia Business School in 2004-2008 and served as interim director of the Sanford C. Bernstein & Co. Center for Leadership and Ethics in 2005-2007. He chairs the Financial and Business Analytics center in Columbia's Data Science Institute.