Information sources, news, and rumors in financial markets: Insights into the foreign exchange market

Abstract

This article presents empirical findings on collective information processing in financial markets. Results are based on a questionnaire survey with 321 traders and 63 financial journalists from leading banks and financial news providers in the European foreign exchange market. Rating each other as the most important information source, foreign exchange traders and financial journalists are engaged in a circular pattern of market information processing, in which trading participants and financial news services form an interdependent relationship. Recent developments in technology have profoundly changed the nature of reporting and the role of news media in the foreign exchange market. Traders rate the speed of news and its anticipated impact on other market participants as more important than its perceived accuracy. These findings may help explain the role played by rumors in financial markets.