Fake news is described as the “deliberate creation and sharing of false or manipulated information to harm others for personal, political, or financial gain.”
Fake News in Financial Markets
- Detecting fake news can be difficult. It’s hard to tell which sources are biased and which are not, and which sources are genuine and which are fake (from a study by Sam Wineburg, Stanford, 2016).
- Seeking Alpha (with crowdsourced information) and Motley Fool (through a shared-knowledge investment advice platform) open the scope for misleading information. These platforms are increasing in popularity. There is a direct correlation between fake news shared on these websites and trading and returns.
- Even Bloomberg has been caught out. It was recently fined EUR 5mn by French regulators after “having prioritised speed over judgment in reporting the fake press release from French construction group Vinci in November 2016, saying that “the sensational nature of this information has outweighed the need to verify the information”. Vinci’s shares plummeted almost 19 per cent after a hoax press release said it had fired its chief financial officer and was restating its results after discovering accounting irregularities.” https://www.ft.com/content/b082851a-07c1-11ea-a984-fbbacad9e7dd
Fake News Creates Real Losses
- The rise of fake news translates to an annual loss of $39 billion on the stock market as reported by University of Baltimore business professor Roberto Cavazos and CHEQ (an artificial intelligence-driven cybersecurity company). They found that as much as 0.05% of the market’s value is at risk of losses due to fake news.
- An example of the impact of fake news is an erroneous ABC news report in 2017 which caused the S&P 500 to drop 38 points in 30 minutes. Once the report was retracted, the loss amounted to $51 billion. (Obviously there were winners as well, those who bought at the bottom).
How to Navigate Fake Financial News
- Do your due diligence – quick reactions may be tempting, but can have a negative effect. Look up sources on Google, LinkedIn, Facebook, Twitter and if something seems unusual, it probably should not be trusted.
- Take a critical perspective of headlines – check for incorrect spelling or grammar, and be critical of outrageous headlines.
- Check the primary source – if you are unfamiliar with the source, always dedicate time to additional research. It may be useful to check any additional articles that they have published. Corroborate information with other reports, especially when using social media which is full of false information. If Bloomberg quotes a source, check that source.
- Watch out for website spoofing – some websites copy credible sources and are designed to mislead readers. Some of these websites are highly sophisticated operations.
- Determine if the author has an agenda and could therefore be biased – is the publication sponsored? Is it designed to sell a product? Is there sufficient data/evidence? What’s the point of the article?
- Look out for humour/satire – some websites publish news through a comedic perspective, which can mislead readers. It is important to always check the source/authors to understand the content’s legitimacy.
- Proceed with caution when predictions are made – they are just predictions and may not be correct.
- Consider the ‘shelf-life’ of the topic.
- Misinformation takes advantage of breaking news stories.
- Is it a complicated topic that requires more analysis? Will it have future implications?
- Ask: “does this have anything to do with me?” E.g. for long-term investors, or retirees, stock tips are probably not relevant.
- Consider the context.
- How is the data presented?
- What is it compared to?
- If an event is considered “rare,” take it with a pinch of salt.
- Question an article’s conclusion.
- News reports often oversimplify information.
- Consider whether the data actually leads to their conclusion, or come up with your own.
What to do if you are a victim of fake news?
- Contact the source publishing the story and ask for a correction right away. It is important to be very fast to limit the damage none.
- If the damage is material, it may be necessary to put out a press release, or Relevant Event.
- It is essential to have ongoing dialogue with Bloomberg, Reuters, Infosel, so that reporters know who to reach out to, before publishing a fake story.
As always Miranda-IR is happy to help you navigate in more detail any of these issues.