When can the market identify old news?

Anastassia Fedyk and James Hodson

Journal of Financial Economics, 2023, vol. 149, issue 1, 92-113

Abstract: What drives the puzzle of market reactions to old news? Motivated by theories of correlation neglect, we conduct an experiment on finance professionals and show that even sophisticated investors have difficulty identifying old information that recombines content from multiple sources. We evaluate the market implications of this mechanism using a unique dataset of 17 million news articles from the Bloomberg terminal. Recombination of old information prompts larger price moves and subsequent reversals than direct reprints. This effect persists across news sentiment, ambiguity, and investor attention. Furthermore, while overall reactions to old information decline over time, differential reactions to recombinations increase.

Keywords: News; Recombination; Information processing; Correlation neglect; Inattention; Reversal (search for similar items in EconPapers)
JEL-codes: C91 D83 G12 G14 G41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:149:y:2023:i:1:p:92-113

DOI: 10.1016/j.jfineco.2023.04.008

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