Fed Board, Report: Effects of Information Overload on Financial Markets, How Much Is Too Much?

“We construct a news-based historical information load index by considering over 2 million articles printed in The New York Times from January 1, 1885 to December 31, 2018. We use these novel data to study the effects of information load on stock market dynamics.”

“Overall, in this paper, we provide supporting evidence on the significant role of media in stock markets. In addition to the extant literature, we show that the excess ow of information predicts stock market returns. Our findings challenge traditional asset pricing theories by noting that the ow of information affects investment decisions, plays a role in the time-series and cross-section of returns, and thus prices cannot always incorporate all information instantly.”