Does Fake News Move the Stock Market?

One of the overriding questions from the 2016 presidential campaign is whether the onslaught of “fake news” altered the outcome of the election. That question is unanswerable, but we now know whether the financial equivalent of fake news altered stock prices.

In early 2017, the SEC took action against a number of web sites, including Seeking Alpha, after it uncovered a large number of articles that contained false information and were posted to prop up the stock prices of the underlying companies. A just-published research study, Fake News, Investor Attention, and Market Reaction, showed that those articles succeeding in driving traffic and raising awareness of the companies.

But it showed that investors were smart enough to disregard the information. There was no discernable increase in the share prices of the companies.

The immediate takeaway is that the market was sufficiently efficient and investors were adequately discerning so that this type of fake news did not pose a threat to you or your clients’ assets. But, as I will explain, there are other lessons about whether one can rely on crowdsourced information sites, such as Seeking Alpha, for accurate information.

First, however, let’s review what led to the SEC’s actions and what the researchers found.

C-list actress turned equity analyst

Kamilla Bjorlin is an actress from Encino, California, who performs under the name Milla Bjorn. She has had minor parts in a few obscure movies. But as a second career, she ran Lidingo Holdings LLC, which, over a two-and-a-half year period between 2011 and 2014 paid writers to generate hundreds of stories extolling the virtues of companies such as Advanced Medical Isotope Corp. (ticker: ADMD) and Galena Biopharma, Inc. (ticker: GALE).