I’m always looking for quirky evidence of market efficiency – or market inefficiency – to share with my students. For example, there’s the Cuba Beverage thing, and the Trump tweets thing.
And now, there’s the fake news thing:
As a video circulated that appeared to partially absolve President Donald Trump in the administration’s Russian meddling scandal on trading floors on Thursday, stocks surged for the first time in days on the apparent breaking news.
The video, it turns out, was actually two weeks old, misleadingly edited with the intention of falsely accusing former FBI director James Comey of perjury—and was initially aired by conspiracy website InfoWars on Thursday around noon.
Trump wasn’t cleared. In fact, since the video had been around since May 3rd, nothing had changed at all. But by the time traders found out, the dollar index had spiked anyway.
The fallout of the story is leaving analysts wondering how to absorb information in a market that is suddenly waiting on bated breath for the latest rumors to come out of the White House—even when those rumors are intentionally misleading or untrue.
…
In other words, the news can be fake, but the rally it creates in the stock market is very real.
[Adam] Button, [the chief currency analyst at ForexLive] said that InfoWars isn’t a site that “anyone on Wall Street usually really believes,” but people may change their reading habits after Thursday’s surge.
“People were asking me today, ‘Is Infowars a site I have to start reading now?’ And I said, ‘The answer is yes,’’ said Button.
“You’re not trading on what’s true and what’s false. You’re trading on what the average voter believes is true. It’s a propaganda war.”
…
The markets chose a particularly inauspicious day to use InfoWars source material to determine what’s happening. Less than 24 hours before the rally, InfoWars host and founder Alex Jones was forced to apologize to and retract articles about Chobani as part of a settlement. …
It’s the second time in two months Jones was forced to apologize and pull down content for claims made on InfoWars. In March, Jones read out a written apology on his show to James Alefantis, whom InfoWars had falsely suggested was running a child sex ring tied to Hillary Clinton’s campaign out of the basement of a pizza shop. Content that had included those allegations were pulled down.
“The idea of trading on propaganda—it’s a strange feeling,” said Button. “Politics is a distraction for the most part, but it’s not anymore. This is taking over.”
Still, would Button recommend reading InfoWars just in case it’s a predictor of how the market might react to bombshell political news—even if it isn’t true?
“I want to say, ‘Yeah, read it now,’” he said. “But the rest of me says, ‘Don’t read that garbage.’”
We have seriously entered Keynesian beauty contest territory; traders don’t care what’s real anymore – all that matters is what other people think is real, at least for a brief period of time.