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Stock Market Rumors and Credibility

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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 dataset of takeover rumors covered by US newspapers, I find suggestive evidence in support of this prediction.
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hal-02896042 , version 1 (10-07-2020)

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  • HAL Id : hal-02896042 , version 1

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Schmidt Daniel. Stock Market Rumors and Credibility. 2018. ⟨hal-02896042⟩

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