Analysing the behavioural finance impact of 'fake news' phenomena on financial markets: a representative agent model and empirical validation

Bryan Fong ()
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Bryan Fong: University of Cambridge

Financial Innovation, 2021, vol. 7, issue 1, 1-30

Abstract: Abstract This paper proposes an original behavioural finance representative agent model, to explain how fake news’ empirical price impacts can persist in finance despite contradicting the efficient-market hypothesis. The model reconciles empirically-observed price overreactions to fake news with empirically-observed price underreactions to real news, and predicts a novel secondary impact of fake news: that fake news in a security amplifies underreactions to subsequent real news for the security. Evaluating the model against a large-sample event study of the 2019 Chinese ADR Delisting Threat fake news and debunking event, this paper finds strong qualitative validation for its model’s dynamics and predictions.

Keywords: Behavioural finance; Fake news; Representative agent model; Event study; Bootstrapping (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1186/s40854-021-00271-z

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