When Can the Market Identify Old News?

60 Pages Posted: 7 May 2014 Last revised: 28 Dec 2022

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: December 2, 2022

Abstract

What drives the puzzle of market reactions to old news? Motivated by theories of correlation neglect, we conduct an experiment on finance professionals and show that even sophisticated investors have difficulty identifying old information that recombines content from multiple sources. We evaluate the market implications of this mechanism using 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. This effect persists across news sentiment, ambiguity, and investor attention. Furthermore, while overall reactions to old information decline over time, differential reactions to recombinations increase.

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

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

Suggested Citation

Fedyk, Anastassia and Hodson, James, When Can the Market Identify Old News? (December 2, 2022). 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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Berkeley, CA 94720
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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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