Lies, damned lies. Post-truth is the word of the year in 2016 and while it stems from the political scene, we’re seeing evidence that a fakery is just as important in the markets.

Fake news stories on the US election have been doing the rounds on Facebook and Google has been indexing articles it probably should be sticking in the dustbin. Even Bloomberg can get things wrong.

Vinci Hoax

 

French construction group Vinci saw its shares tank 18% on a fake press release that said the company would sack its chief finance offer Christian Labeyrie and restate its accounts.

The hoax appeared on Bloomberg late on Tuesday afternoon and suggested that Vinci planned to restate accounts from 2015 and 2016.

Shares in the company tumbled on the announcement before it quickly issued a denial and said it had been the victim of a malicious hoax.

Vinci_Nov22_move

“Vinci denies formally all the information contained in this fake press release and is investigating all legal actions in furtherance thereof,” it said. But the damage was done – shares in the company still ended down 4% for the day.

The fact that, as Paul Murphy of FT Alphaville points out, the fake news story itself makes absolutely no sense is irrelevant; it conned the market for a short time. What’s not clear is if anyone profited from the move by shorting the stock.

G4S was the victim of a very similar scam in 2014 – again the hoax claimed that the company would restate its accounts and sack the finance director. In 2015, shares in Avon Products surged 20% after a reported $8.2bn bid from a (fake) private equity group. Fakery is not new but it does seem easier to spread today because there is so much information out there, the traditional breakwaters - newspapers, editors etc - don't have the resources to manage it all the time.

Twitter and social media only adds to the means for fraudsters to spread their rumours. In 2013 for example a hacked AP Twitter account falsely reported explosions at the White House, leading to a sharp drop for the Dow Jones Industrial Average in the few minutes it was up.

Fakery is not the only problem for traders – old news can also make for poor decisions.

Old News

 

As we discussed earlier this year, social media can be a serious problem for traders.

Oxford University researchers showed the old news phenomenon can lead to increased volatility – with stocks moving around for sometimes weeks on the same report.

Traders and investors treat repeated information as if it were new, meaning securities can be susceptible to “random sentiment shocks”.

 “Stocks with high social media coverage in one month experience high idiosyncratic volatility of returns and trading volume in the following month,” the researchers explained. “Conversely, stocks with high news media coverage experience low volatility and low trading volume in the following month.”

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