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Manchester Grand Hyatt, Seaport A
American Finance Association
Analysts, News, and Intermediaries
Sunday, Jan. 5, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Eric So, Massachusetts Institute of Technology
Fake News: Evidence from Financial Markets
AbstractWe examine fake news in financial markets, a laboratory that offers an opportunity to quantify its direct and indirect effects. We study three experimental settings. The first is a unique dataset of unambiguous fake articles on financial news platforms prosecuted by the Securities and Exchange Commission. The second applies a linguistic algorithm to detect deception in expression on the universe of articles on these platforms, using the first sample as a validation and calibration set. The third is an event study exploiting the SEC investigation as a public shock to investor awareness of fake news. We find that fake news increases trading activity and price volatility relative to non-fake news for the equity securities of firms mentioned in the articles. Following public revelation of the existence of fake news, we find an immediate decrease in reaction to all news, including legitimate news, on these platforms, consistent with indirect spillover effects of fake news conjectured by theory. These findings are predominant among small firms with high retail ownership, and are stronger for more circulated articles. Our results are consistent with economic theory on media bias and its application to fake news.
Non-Deal Roadshows, Investor Welfare, and Analyst Conflicts of Interest
AbstractNon-deal roadshows (NDRs) are private meetings between management and institutional investors, typically organized by analysts. We find that around NDRs, local institutional investors trade heavily and profitably, while retail trading is significantly less informative. Analysts who sponsor NDRs issue significantly more optimistic recommendations and target prices, coupled with more “beatable” earnings forecasts, consistent with analysts issuing strategically biased forecasts in order to win NDR business. Our results suggest that NDRs result in wealth transfers from small retail investors to large institutional investors and create significant conflicts of interests for the analysts that organize them.
University of Miami
University of California-Berkeley
University of Florida
- G1 - General Financial Markets