Information Transmission Through Rumors in Stock Markets: A New Evidence

Chun-Da Chen and Ali Kutan

Journal of Behavioral Finance, 2016, vol. 17, issue 4, 365-381

Abstract: The authors provide new evidence of the influence of false rumors based on Taiwan's stock market. The results indicate significant patterns of abnormal returns and trading volumes surrounding the event day and that the rumors seem to be disseminated in the stock market before appearing in newspapers. The results also indicate asymmetry: Investors hearing a positive rumor about a stock may tend to buy the stock, prompting a price run-up until the rumor dies away, while negative rumors usually have greater and longer negative impacts on stock returns than positive rumors do. The presence of a daily price limit is negatively correlated to the size of abnormal returns and abnormal trading volumes on the event day, and the abnormal trading volumes are more sensitive to the price limit surrounding the event day. Finally, firm managers might receive rumor information earlier and then conduct stock trading before the rumor's announcement.

Date: 2016
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DOI: 10.1080/15427560.2016.1238373

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