When Can the Market Identify Stale News?

Abstract:

Why do investors react to old information? We conjecture that it is cognitively difficult to identify old content combined from multiple sources. We use a unique dataset of news passing through the Bloomberg terminal to differentiate "recombination" stories that draw content from several sources from direct "reprints." Firms see larger price moves on days when they have more recombination stories relative to reprints. Furthermore, while overall reactions to old information have declined over time, differential reactions to recombination stories have risen.  Altogether, the results point to investors' increased sophistication in discarding reprints, but continuing susceptibility to recombination of old information.