Clogged information flow and stock-market sluggishness

Area of Science:

• Economics
• Financial Markets
• Media Studies

Background:

• The 1970 Newspaper and Mail Deliverers' Union strike against The Wall Street Journal provides a unique case study.
• Understanding the impact of information flow disruptions on financial markets is crucial.

Purpose of the Study:

• To analyze the trading effects of a major news source's temporary closure.
• To investigate how market participants react to clogged information channels.

Main Methods:

• Event study analysis of stock market turnover and asset return comovement.
• Examination of trading data surrounding the 1970 strike period.

Main Results:

• Significant initial drop in turnover, followed by a return to normal and then an increase.
• Increased asset return comovement during the information blockade.
• Evidence of media substitution by market participants.
• Turnover linked to article publication and abnormal returns, with a stronger response to negative returns.

Conclusions:

• Information flow disruptions, like media strikes, can cause market sluggishness and alter trading dynamics.
• Market participants exhibit adaptive behavior through media substitution.
• The findings highlight the interconnectedness of media availability and financial market efficiency.