Stock Market Rumors and Credibility

Review of Financial Studies, Forthcoming

HEC Paris Research Paper No. FIN-2019-1331

64 Pages Posted: 16 Feb 2019 Last revised: 16 May 2019

See all articles by Daniel Schmidt

Daniel Schmidt

HEC Paris - Finance Department

Date Written: November 21, 2018


Stock prices occasionally move in response to unverified rumors. I propose a cheap talk model in which a rumormonger's incentives to tell the truth depend on the interaction between her investment horizon and the information acquisition decisions of message-receiving investors. The model's key prediction is that short investment horizons can facilitate credible information sharing between investors, thereby accelerating the information capitalization into market prices. Analyzing a dataset of takeover rumors covered by US newspapers, I find suggestive evidence in support of this prediction.

Keywords: Rumors, Cheap Talk, Investment Horizons, Information Efficiency

JEL Classification: G11, G14

Suggested Citation

Schmidt, Daniel, Stock Market Rumors and Credibility (November 21, 2018). Review of Financial Studies, Forthcoming, HEC Paris Research Paper No. FIN-2019-1331, Available at SSRN:

Daniel Schmidt (Contact Author)

HEC Paris - Finance Department ( email )

0652678597 (Phone)


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