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Buy the Rumor, Sell the News: When Is News Priced In?

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Listed:
  • Alireza Kargarzadeh
  • Nariman Khaledian
  • Navid Parvini
  • Sid Ghatak
  • Arman Khaledian

Abstract

Two old market sayings hold that news is already priced in by the time it is published, and that the rumor is bought while the news is sold. Both are empirical claims about event time: they place the price move associated with a piece of news before and at publication rather than after it. Whether the claims hold, for which kinds of news, and by how much are basic questions about how fast markets absorb public information. We test them on 4.57 million financial news articles covering roughly 3,000 US stocks (2023-2026). A large language model teacher, distilled into a compact classifier through active learning, assigns each article one of 17 event tags and five attributes; articles are clustered into stories to separate first reports from follow-up coverage; and beta-adjusted abnormal returns are measured around the resulting 1.68 million stock-day events, with 364{,}405 neutral-sentiment events as a placebo group. Three results follow. First, the price move associated with news concentrates before and at publication: pooled across all signed events, the cumulative move in the news direction by the close of publication day is 2.8 times its value twenty days later, and for rumor-flagged events the directional return is concentrated around the rumor event, with little incremental return at the subsequent linked non-rumor event. Second, measured against the placebo of comparable stocks, markets underreact to numbers and overreact to stories: quantified fundamental news (earnings, dividends, guidance, analyst actions) keeps drifting in the direction of the news for weeks, while soft story-driven news (launches, macro commentary, leadership) gives back its move. Third, news carries width as well as direction: neutral news raises publication-day volatility. The study also produces a table of measured drift for each event tag, usable as a prior in news-conditioned forecasting models.

Suggested Citation

  • Alireza Kargarzadeh & Nariman Khaledian & Navid Parvini & Sid Ghatak & Arman Khaledian, 2026. "Buy the Rumor, Sell the News: When Is News Priced In?," Papers 2608.14014, arXiv.org, revised Oct 2026.
    • Handle: RePEc:arx:papers:2608.14014
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    References listed on IDEAS

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    1. Bokai Cao & Saizhuo Wang & Xinyi Lin & Xiaojun Wu & Haohan Zhang & Lionel M. Ni & Jian Guo, 2025. "From Deep Learning to LLMs: A survey of AI in Quantitative Investment," Papers 2503.21422, arXiv.org.
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