Evaluating a news-aware quantitative trader: The effect of momentum and contrarian stock selection strategies

We study the coupling of basic quantitative portfolio selection strategies with a financial news article prediction system, AZFinText. By varying the degrees of portfolio formation time, we found that a hybrid system using both quantitative strategy and a full set of financial news articles performed the best. With a 1-week portfolio formation period, we achieved a 20.79% trading return using a Momentum strategy and a 4.54% return using a Contrarian strategy over a 5-week holding period. We also found that trader overreaction to these events led AZFinText to capitalize on these short-term surges in price.