Fake News, Investor Attention, and Market Reaction

45 Pages Posted: 1 Aug 2018 Last revised: 17 Sep 2019

See all articles by Jonathan Clarke

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business

Hailiang Chen

The University of Hong Kong - Faculty of Business and Economics

Ding Du

Carnegie Mellon University

Yu Jeffrey Hu

Georgia Institute of Technology - Scheller College of Business

Date Written: September 2019

Abstract

Does fake news in financial markets attract more investor attention and have a significant impact on stock prices? We use the SEC crackdown of stock promotion schemes in April 2017 to examine investor attention and the stock price reaction to fake news articles. Using data from Seeking Alpha, we find that fake news stories generate significantly more attention than a control sample of legitimate articles. We find no evidence that article commenters can detect fake news and Seeking Alpha editors have only modest ability to detect fake news. However, we show that machine learning algorithms can successfully identify fake news from linguistic features of the article. The stock market appears to price fake news correctly. While abnormal trading volume increases around the release of fake news, the increase is less than that observed for legitimate news. The stock price reaction to fake news is discounted when compared to legitimate news articles.

Keywords: fake news, investor attention, financial technology, textual analysis, social media

Suggested Citation

Clarke, Jonathan and Chen, Hailiang and Du, Ding and Hu, Yu Jeffrey, Fake News, Investor Attention, and Market Reaction (September 2019). Information Systems Research, Forthcoming; Georgia Tech Scheller College of Business Research Paper No. 18-29. Available at SSRN: https://ssrn.com/abstract=3213024 or http://dx.doi.org/10.2139/ssrn.3213024

Jonathan Clarke

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-4929 (Phone)
404-894-6030 (Fax)

HOME PAGE: http://mgt.gatech.edu/directory/clarke.html

Hailiang Chen (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

K. K. Leung Building
University of Hong Kong
Hong Kong

HOME PAGE: http://www.fbe.hku.hk/people/academic/hailiang-chen

Ding Du

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Yu Jeffrey Hu

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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