When Can the Market Identify Old News?

51 Pages Posted: 7 May 2014 Last revised: 1 Jun 2021

See all articles by Anastassia Fedyk

Anastassia Fedyk

University of California, Berkeley - Haas School of Business

James Hodson

AI for Good; Cognism; Jožef Stefan Institute

Date Written: May 17, 2021

Abstract

What drives the persistent puzzle of market reactions to old news? Motivated by theories of correlational neglect, we conduct an experiment on finance professionals and show that even sophisticated investors have difficulty identifying old information that recombines content from multiple previous news articles. To evaluate the market implications of this mechanism, we exploit a unique dataset of 17 million news articles from the Bloomberg terminal. Recombination of old information prompts larger price moves and subsequent reversals than direct reprints of old news. Furthermore, while overall reactions to old information have declined over time, differential reactions to recombinations have risen.

Keywords: news, recombination, information processing, correlational neglect, inattention, reversal

JEL Classification: G12, G14, G41, D83, C91

Suggested Citation

Fedyk, Anastassia and Hodson, James, When Can the Market Identify Old News? (May 17, 2021). Available at SSRN: https://ssrn.com/abstract=2433234 or http://dx.doi.org/10.2139/ssrn.2433234

Anastassia Fedyk (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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2220 Piedmont Avenue
Berkeley, CA 94720
United States

James Hodson

AI for Good ( email )

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HOME PAGE: http://ai4good.org

Cognism ( email )

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Jožef Stefan Institute ( email )

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HOME PAGE: http://ailab.ijs.si

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