Fake News: Evidence from Financial Markets

73 Pages Posted: 14 Aug 2018

See all articles by Shimon Kogan

Shimon Kogan

Reichman University - Arison School of Business; University of Pennsylvania - The Wharton School

Tobias J. Moskowitz

AQR Capital; Yale University, Yale SOM; National Bureau of Economic Research (NBER)

Marina Niessner

University of Pennsylvania - The Wharton School

Date Written: August 14, 2018

Abstract

Using a unique dataset of fake paid-for articles obtained from an SEC investigation, we examine the impact of fake news in financial markets. In addition to the known fake articles, we use a linguistic algorithm to detect deception in expression for a much larger set of news content with unknown authenticity. The known fake articles are used to validate the algorithm. We find increases in abnormal trading volume and temporary price impact following fake news for small firms, but no impact for large firms. Following the SEC’s announced investigation, we find a marked decrease in the probability of false content and a decrease in reaction by investors to all news, but especially content with less authenticity. These findings are most pronounced for small firms with high retail ownership. Finally, small firms engage in press releases, 8-K filings, and insider trading that coincide with fake articles, consistent with concerns of coordinated stock price manipulation. No such patterns are observed for large firms. Our setting provides a unique opportunity to quantify fake news’ impact that avoids the joint hypothesis problem plaguing tests of informational efficiency.

Keywords: fake news, market efficiency, textual analysis

JEL Classification: G14

Suggested Citation

Kogan, Shimon and Moskowitz, Tobias J. and Moskowitz, Tobias J. and Niessner, Marina, Fake News: Evidence from Financial Markets (August 14, 2018). Available at SSRN: https://ssrn.com/abstract=3231461

Shimon Kogan (Contact Author)

Reichman University - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Tobias J. Moskowitz

AQR Capital ( email )

Greenwich, CT
United States

Yale University, Yale SOM ( email )

New Haven, CT 06520
United States

HOME PAGE: http://som.yale.edu/tobias-j-moskowitz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marina Niessner

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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