Fake News and Asset Price Dynamics

Mignot Sarah, Pellizzari Paolo and Frank Westerhoff
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Mignot Sarah: Department of Economics, University of Bamberg, Feldkirchenstraße 21, 96045 Bamberg, Germany
Pellizzari Paolo: Department of Economics, Ca’ Foscari University of Venice, Venezia, Italy

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2024, vol. 244, issue 4, 351-379

Abstract: We explore the impact of fake news on asset price dynamics within the asset-pricing model of Brock and Hommes (Brock, W. A., and C. H. Hommes. 1998. “Heterogeneous Beliefs and Routes to Chaos in a Simple Asset Pricing Model.” Journal of Economic Dynamics and Control 22 (8): 1235–74). By polluting the information landscape, fake news interferes with agents’ perception of the dividend process of the risky asset. Our analysis reveals that fake news decreases the steady-state price of the risky asset by making it even more risky. Moreover, fake news increases the market share of agents who use the destabilizing technical trading rule by rendering fundamental trading more difficult and costly. Instead of converging toward its steady state, the risky asset’s price may thus be subject to wild fluctuations. As it turns out, these fluctuations are concentrated below the risky asset’s steady-state price. We also show that fake news campaigns may allow certain agents to realize fraudulent profits.

Keywords: asset price dynamics; fake news; chartists and fundamentalists; bounded rationality and learning; stability and bifurcation analysis (search for similar items in EconPapers)
JEL-codes: G12 G14 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:244:y:2024:i:4:p:351-379:n:1006

DOI: 10.1515/jbnst-2024-0019

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