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Can you keep a secret? The dissemination of false rumors and the evolution of bubbles in perceived predatory trading games

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  • Herzing, Tobias J.
  • Muck, Matthias

Abstract

This research addresses the impact of fake rumors on the evolution of bubbles in stock prices in a perceived predatory trading game. In line with intuition, we find that the development of these bubbles is significantly different from the formation and progression of bubbles based on true rumors. Particularly, the first increase in stock prices may be followed by a crash when the rumor is not true. More volatility is observed when there are many players or when there is a lot of pressure to act on the victim. In contrast, the dissemination of the rumor has a dampening effect on the inflation of the bubble when the rumor is true. Moreover, it is more difficult to detect false rumors from stock prices when there are many predators. This observation makes herding among predators a particular challenging problem for regulators and policymakers.

Suggested Citation

  • Herzing, Tobias J. & Muck, Matthias, 2024. "Can you keep a secret? The dissemination of false rumors and the evolution of bubbles in perceived predatory trading games," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924005246
    DOI: 10.1016/j.irfa.2024.103592
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    More about this item

    Keywords

    Predatory trading; Stock market bubbles; Rumors;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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