Clogged information flow and stock-market sluggishness.

Premal P Vora,Stefan Cristian Gherghina

doi:10.1371/journal.pone.0235978

Abstract

I provide evidence on the trading effects of the 1970 Newspaper and Mail Deliverers’ Union’s strike against The Wall Street Journal. I find that turnover falls significantly on the first few days of the strike, returns to normal, then even exceeds the average as the strike proceeds. The evidence is consistent with the idea that a clogged information flow causes sluggishness in the market but consumers of media substitute one source for another when their preferred source is clogged. The effects are widespread without regard to firm size or other firm characteristics. When information is clogged, I find that return comovement among assets increases. Finally, I also find that turnover is closely related to the publication of an article in the Journal and to positive and negative abnormal returns, but responds more to the latter.

Highlights

One of the longest-lasting and most significant paradigms of the financial market is that of market efficiency
There appear to be many departures from this idyllic view of the market, all well-documented in the literature for a list of the top 11 well-documented departures from market efficiency)
In the presence of noise traders it is possible that the market departs from efficiency and these very traders bring about noise-trader risk that acts to limit arbitrage by arbitrageurs [3]

Summary

Introduction

One of the longest-lasting and most significant paradigms of the financial market is that of market efficiency. In this paper I provide new evidence on what happens to trading activity and market efficiency if the free flow of news or information is somehow clogged.

Results

Conclusion