And are the reactions automated based on some NLP? Milliseconds wouldn’t matter if a human has to still parse it, correct?
Acting on M&A news by taking a more aggressive position generally requires more confidence than, say, backing off based on ‘bad’ news. In the first case, you want to be pretty sure of the headline before taking action. In the latter, the mere presence of words like ‘fraud’ and ‘investigation’ might be enough to play it safe and say, “we’re going to back off trading this underlying until a human has a chance to look at this.”
Now let’s say there’s negative news on the Chinese economy. Someone could be running an algorithm that sells down companies with Chinese exposure. But, inherently, there likely is a much lower probability that this news is uniform or material across companies with China exposure. A strategy like this likely would get put on small positions and get in and out quickly as it could get run over depending on how humans process the information and make bigger discretionary bets.
There definitely is a risk too all of this. Roughly 10 years ago, somehow an old united Airlines bankruptcy article hit the wire and the stock sold off hard. Eventually, United released a statement saying the article was innacurate. This isn’t typically the type of strategy you would make large, single bets with, or hold the positions over a long period.
One tends to carry more serious consequences when you’re wrong. Accordingly, the ‘take’ path generally has more checks, and more opportunities to abort.
Yes, you might misread here or there. But this is a game of statistics and the real win/loss is whether you read correctly more often this read incorrectly. You want your net wins to be positive.