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Fake news

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  • Brigida, Matt
  • Pratt, William R.

Abstract

This analysis uses Twitter stock and options prices sampled at a 30s frequency around the fake news announcement, of a bid for a controlling stake in Twitter stock, to investigate how noise trading and informed trading is disseminated into equity and option markets. We find reaction to the fake news occurred in the equity market, and the option market reacted with a delay. This differs from many analyses of actual news events, which found informed traders prefer the options market, and information from their trades then leaks into the equity market. We conclude uninformed traders, and those aware of the hoax, prefer to trade in equity over option markets. This result has implications for isolating informed trading around actual news events.

Suggested Citation

  • Brigida, Matt & Pratt, William R., 2017. "Fake news," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 564-573.
    • Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:564-573
    DOI: 10.1016/j.najef.2017.08.012
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    References listed on IDEAS

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    More about this item

    Keywords

    Informed trading; Noise; Microstructure; Implied volatility; Hoax; Changepoint;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General

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