False News, Informational Efficiency, and Price Reversals

Jérôme Dugast and Thierry Foucault

Working Papers from HAL

Abstract: Information processing filters out the noise in data but it takes time. Hence, low precision signals are available before high precision signals. We analyze how this feature affects asset price informativeness when investors can acquire signals of increasing precision over time about the payoff of an asset. As the cost of low precision signals declines, prices are more likely to reflect these signals before more precise signals become available. This effect can ultimately reduce price informativeness because it reduces the demand for more precise signals (e.g., fundamental analysis). We make additional predictions for trade and price patterns.

Keywords: Asset Price Informativeness; Big Data; FinTech; Information Processing; Markets for Information; Contrarian and momentum trading. (search for similar items in EconPapers)
Date: 2014-02-21
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Citations: View citations in EconPapers (9)

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Working Paper: False News, Informational Efficiency, and Price Reversals (2014)
Working Paper: False News, Informational Efficiency, and Price Reversals (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-02058260

DOI: 10.2139/ssrn.2398904

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