Flooding in News? Building a Comprehensive News Index to Explain Financial Price Indexes

In a moment where humans produce an overwhelming quantity of information and are able to numerically analyze it, we propose to test whether markets are able to incorporate such amounts of information to prices. We transform four million news into a news index that has explanatory power over equity, bonds and commodities returns. Our index captures the most salient elements of news and gives them an informative score. Moreover, in contrast to previous studies that include only certain types of news or events, our index endogenously controls for the complexity, size and diversity of investors information set