When Can the Market Identify Old News?

Abstract

Why do investors react to old information? We provide survey evidence to experimentally document that active finance professionals are more susceptible to old information when it comes as a recombination of content from multiple sources. To evaluate the market implications of this mechanism, we exploit a comprehensive dataset of news passing through the Bloomberg terminal. Recombination of old information prompts larger price moves and subsequent reversals than direct reprints of old stories. Furthermore, while overall reactions to old information have declined over time, differential reactions to recombination stories have risen. Altogether, we document investors' increased sophistication in discarding simple reprints but continuing susceptibility to recombination of old information.

Keywords: news, information processing, investor inattention

JEL Classification: G1, N2