Study finds investors overestimate value of existing corporate news

A new study titled ‘Mental Models of the Stock Market,’ published in ‘The Quarterly Journal of Economics,’ suggests that both private investors and fund managers often overestimate the value of existing corporate news. The research indicates that many investors mistakenly view news regarding cost reductions or increased efficiency as a signal to buy, even when the information is already outdated.

Involving over 7,000 participants from Germany and the United States, the study was conducted by researchers from several institutions, including the ECONtribute excellence cluster at the Universities of Bonn and Cologne, Goethe University Frankfurt, the Leibniz Institute for Financial Research SAFE, and the Max Planck Institute for Rational Choice. The findings challenge the assumption that positive corporate news automatically leads to higher stock prices for those acting on the information after it has been released.