All the News That's Fit to Reprint : Do Investors React to Stale Information?

This paper tests whether stock market investors appropriately distinguish new and old information about firms. The staleness of a news story is its textual similarity to the previous ten stories about the same firm. The tests show that firms' stock returns are less responsive to stale news. Even so, a firm's return on the day of stale news negatively predicts its return in the following week. Individual investors increase their tendencies to aggressively trade on news when news is stale. The return reversal after stale news is significantly larger in stocks with above-average individual investor trading activity on the day of the news. These results and others support the idea that individual investors overreact to stale information, leading to temporary movements in firms' stock prices. The findings are inconsistent with alternative interpretations of the empirical measure of staleness and the return reversal