Fake News and its Repercussions on the Stock Market

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Fake News and its Repercussions on the Stock Market
On April 24, 2013, a report from a Twitter handle of the Associated Press revealed an injury of Barrack Obama from an explosion at the White House. The news quickly spread to more than 4,000 retweets. Well, many believed the story to be the truth. However, there was no evidence to support the report, meaning the Barrack Obama was healthy and alive (Rapoza 1). Fake news is misinformation that spreads on social media and online channels with the intention to ensure market disruption using an aspect of "fear, uncertainty, and doubt (FUD)." Numerous businesses have experienced the impacts of fake news with some benefiting while others are making massive losses during the period of its spread (The Investor 1). One such sector that faces numerous challenges is the stock market. Bloggers deliver business information online and news sites with such article going viral with manipulation aspects regarding the market directions. As a result, marketers move asset prices through the written words as well as misleading headlines.
The April Tuesday event caused high volatility with most trades pointing the finger at the algorithms used to polish through the online activities with quick speeds when making a trade based on the misinformation. As a response to the incidence, the AP replied to the Twitter information with an immediate suspension of its account as well as informing the readers in other reports that such information regarding the White House explosion resulted due to hack (Rapoza 1). There was no harm and foul. The fake news or rumors with misinformation is the currently trending especially in the markets and social media. The AP press on its Twitter handle delivered information of an explosion in the White House on April 24, 2013, indicating that Barrack Obama had injuries. Immediately after the news went viral, a report by Financial Times on the same information on tweet stated that the information affected the stock market with S&P 500 realizing a decline of 0.9% which was responsible for clearing $ 130 billion stock values in the market within seconds (Rapoza 1). Consequently, the market recovered all the losses. However, the breakneck pace of competition in the stock market plunged resulting in investors remaining bankrupt. The fake news on explosion did not happen by chance, but it was a well-orchestrated move by the Wall Street firms using computers to transact numerous trades in seconds to make abnormal profits for each trade. Christopher Matthews notes the ideas according to Irene Aldrige who is the managing partner and the quantitative portfolio manager at the ABLE Alpha Trading. He mentions that traders at high-frequency levels compile all the sources of information such as Twitter, publications, SEC filings among others and then program computers to iron all the references. The computers identify critical words for negativity such as bankruptcy, merger or any other terms in business to signal new idea on the broad market. As the result of the activity, companies lose value while the money makers get good businesses such as the HFT firms (Christopher 1).
Borrowing from the Tuesday's incidence on White House, it seems many computers for different companies at the stock market had the word "White House," "explosion" and "Barrack Obama" in all the databases. Thus, such keywords trigger the rate of selling at an appropriate time. Henceforth, whenever a company with a reputation such as AP with followers gives information or such words, then it will receive many retweets and they will sell. However, other traders experienced high liquidity in the marketplace which resulted in a reduction of trading costs (Christopher 1).
On a separate note, fake new is essential for the stock market traders. The use high-frequency algorithms in trade help in winning the stock markets. Therefore, marketers usually act fast on the critical information at high-frequency trading. The AP Twitter hack of 2013 accessed and analyzed data from the social media Tweets. As a result, the computers give fake news with no reliable source hence manipulating the information on the stock market (Christopher 1).
Firms at the stock market get their fair portions of fake news. Adam Feuerstein from Street noted that a journalist could use more than three different pseudonyms on articles to seek Alpha. He affirmed that Galena Biopharma (GALE) faced articles written by both paid journalists as well as more than 13,000 contributors that included newsletter writers, research groups, and investors who were ready to seek for finance and their clients through shorting or buying the stocks (Versace 1). Upon fulfilling the objectives, the investors or writers seeking Alpha publish their work to reach the broad audience. For example, a letter written on 7 December 2016 by the Pershing Square to its shareholders on the firm laid out its case gave the reasons for expecting earnings at Herba-life in 2017. Even though the earning per share at the year 2017 is flat, Pershing notes that Herba-life share reduced to more than 29% while at December 2016, the shares were at $ 47.99 per share. Thus, Pershing Square relies on the fake news with factual distortion to ensure it earns a profit or wins in the business (Versace 1). Therefore, investors need to conduct background information before trading with such enterprises detailing on the investment track records and performance. Furthermore, they should not the risks, opportunities, the nature of the stock market and the information that is true (Versace 1). Separately, Chris Flood in 2017 wrote an article “Fake news infiltrates financial markets” in Financial Times journal that gives information on economic and business. The author indicates that there is an increase in the promotion of stock campaigns. Seeking Alpha website is currently misleading with articles that favor the Immuno Cellular Therapeutics. In the report, Vincent Cassano received payments to suggest that the enterprise released a potent anticancer drug that is cheap compared to the prices of its competitors. As a result, the company registered an increase in its share price from $ 42.8 as at January 18, 2012, to $ 155.2 by the beginning of June 2012. However, due to the presence of a failure in the clinical updates, the sh...