Misinformation in the Information Age

An old maxim among traders on the stock exchange says “buy on rumours, and sell when on news.” In practical terms, this means that when there is a rumour that a company’s value will shoot up, speculators should not wait to corroborate it but instead should rush to purchase stocks in the hope that the rumour proves to be true.

When it does, investors will rush to follow suit, at which point it will be time to sell because the value of the stocks will have gone up in the wake of the increased demand. This is not insider trading, however. The traders have no concrete way of confirming the rumour, apart from the facts available to them and their intuition that tells them whether or not to pursue it. If they buy stocks on the basis of a rumour, they could still risk a loss.

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