Stock Market Rumors and Credibility

Daniel Schmidt ()
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Daniel Schmidt: HEC Paris

No 1331, HEC Research Papers Series from HEC Paris

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2019-02-16
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1331

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