Fallacious framing : how "noise" is introduced into financial market news

Abstract

Financial news has a checkered reputation, not least in the realm of finance research which indicates financial news stories often provide little in the way of actionable information to investors and can actually prove detrimental to the information efficiency of financial markets by introducing “noise” instead of information.

The existing research, however, does little to elucidate the root causes of this phenomenon from a journalistic perspective.

One subset of financial news, stock-market commentary, offers a particularly suitable source of material with which to help fill this gap. Daily news stories on trading activity in stock markets have long been a staple of financial news, and the structure of these stories is strictly prescribed by journalistic routines: journalists are directed to explain a rise or fall in a benchmark stock-market index by reference to one or more broader factors such as the publication of economic data, movement in other financial markets, or a socioeconomic event of major significance. Financial journalists thus choose one or more frames to contextualise market movements, selected from their individual cognitive schema derived from newsroom discourse.

This paper will apply a novel framework, based on an interdisciplinary approach combining finance research with communications research, to analyse stock market coverage by two global newswires. The combined quantitative and qualitative approach will demonstrate how journalists’ attempts to frame market activity generate often arbitrary or fallacious results and, more importantly, will show how the ossified journalistic routines governing the production of stock-market commentary, which have changed little since the first template was created more than 100 years ago and have failed to keep pace with the rapid development of financial markets, actually degrade rather than promote readers’ understanding of the proper functioning of financial markets by attributing causal phenomena to market movements that consist primarily of noise instead of information, thus increasing rather than reducing the information efficiency of markets.