Review of Financial Studies Vol. 33 No. 8 2020
Stock Market Rumors and Credibility
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 data set of takeover rumors covered by U.S. newspapers, I find suggestive evidence in support of this prediction.
- DOI
- 10.1093/rfs/hhz120
- Volume
- 33
- Issue
- 8
- Pages
- 3804-3853
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref