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Fake News and Asset Price Dynamics

Author

Listed:
  • Mignot Sarah

    (Department of Economics, University of Bamberg, Feldkirchenstraße 21, 96045 Bamberg, Germany)

  • Pellizzari Paolo

    (Department of Economics, Ca’ Foscari University of Venice, Venezia, Italy)

  • Westerhoff Frank

    (Department of Economics, University of Bamberg, Feldkirchenstraße 21, 96045 Bamberg, Germany)

Abstract

We explore the impact of fake news on asset price dynamics within the asset-pricing model of Brock and Hommes (Brock, W. A., and C. H. Hommes. 1998. “Heterogeneous Beliefs and Routes to Chaos in a Simple Asset Pricing Model.” Journal of Economic Dynamics and Control 22 (8): 1235–74). By polluting the information landscape, fake news interferes with agents’ perception of the dividend process of the risky asset. Our analysis reveals that fake news decreases the steady-state price of the risky asset by making it even more risky. Moreover, fake news increases the market share of agents who use the destabilizing technical trading rule by rendering fundamental trading more difficult and costly. Instead of converging toward its steady state, the risky asset’s price may thus be subject to wild fluctuations. As it turns out, these fluctuations are concentrated below the risky asset’s steady-state price. We also show that fake news campaigns may allow certain agents to realize fraudulent profits.

Suggested Citation

  • Mignot Sarah & Pellizzari Paolo & Westerhoff Frank, 2024. "Fake News and Asset Price Dynamics," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 244(4), pages 351-379.
    • Handle: RePEc:jns:jbstat:v:244:y:2024:i:4:p:351-379:n:1006
    DOI: 10.1515/jbnst-2024-0019
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    References listed on IDEAS

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    More about this item

    Keywords

    asset price dynamics; fake news; chartists and fundamentalists; bounded rationality and learning; stability and bifurcation analysis;
    All these keywords.

    JEL classification:

    • 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
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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