Fake News: Evidence from Financial Markets

84 Pages Posted: 31 Aug 2018 Last revised: 22 Apr 2019

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

AQR Capital Management, LLC

Date Written: April 15, 2019

Abstract

We examine fake news in financial markets, a laboratory that offers an opportunity to quantify its direct and indirect impact. We study three experimental settings. The first is a unique dataset of unambiguous fake articles on financial news platforms prosecuted by the Securities and Exchange Commission. The second applies a linguistic algorithm to detect deception in expression on the universe of articles on these platforms, using the first sample to validate and calibrate the algorithm. The third is an event study exploiting the SEC investigation as a public shock to investor awareness of fake news. We find that trading activity and price volatility rise with fake news about the firms mentioned in the articles. Following public revelation of the existence of fake news, we find an immediate decrease in reaction to all news, including legitimate news, on these platforms, consistent with indirect spillover effects of fake news conjectured by theory. These findings are predominant among small firms with high retail ownership, and are stronger for more circulated articles. Our results are consistent with economic theory on media bias and its application to fake news.

Suggested Citation

Kogan, Shimon and Moskowitz, Tobias J. and Niessner, Marina, Fake News: Evidence from Financial Markets (April 15, 2019). Available at SSRN: https://ssrn.com/abstract=3237763 or http://dx.doi.org/10.2139/ssrn.3237763

Shimon Kogan (Contact Author)

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

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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