Fake News in Financial Markets

67 Pages Posted: 31 Aug 2018 Last revised: 12 Nov 2020

See all articles by Shimon Kogan

Shimon Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management; IDC Herzliya - Arison School of Business

Tobias J. Moskowitz

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

Marina Niessner

Yale School of Management

Date Written: November 11, 2020

Abstract

We study fake news in financial markets using a novel dataset from an undercover SEC investigation. Our setting measures both the direct and indirect effects of market manipulation. Fake articles directly induce abnormal trading activity and increase price volatility, but in addition, the awareness of fake news from the SEC investigation indirectly affects legitimate articles, causing market participants to discount all news from these platforms. These spillover consequences significantly reduce the social network’s impact on information dissemination, trading, and prices. The results are particularly acute among small firms with high retail ownership and for the most circulated articles. The equilibrium response of consumers and producers of news on these networks is consistent with models of trust, providing novel evidence on the importance of social capital for financial activity.

Suggested Citation

Kogan, Shimon and Moskowitz, Tobias J. and Niessner, Marina, Fake News in Financial Markets (November 11, 2020). Available at SSRN: https://ssrn.com/abstract=3237763 or http://dx.doi.org/10.2139/ssrn.3237763

Shimon Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel

Tobias J. Moskowitz

Yale University, Yale SOM ( email )

New Haven, CT 06520
United States

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

AQR Capital ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marina Niessner (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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