News is Devoured in Minutes

Devouring the News
Devouring the News

In Analysis for Financial Management,1 Robert C. Higgins portrays how market participants instantly devour new information, which serves as the inspiration for the painting on the following pages. "The arrival of new information to a competitive market can be likened to the arrival of a lamb chop to a school of flesh-eating piranhas," Higgins writes. "The instant the lamb chop hits the water there is turmoil as the piranhas devour the meat. Very soon, the meat is gone, leaving only the worthless bone behind, and the water returns to normal… no amount of gnawing on the bone will yield any more meat, and no further study of old information will yield any more valuable intelligence."

A 1969 study titled, "The Adjustment of Stock Prices to New Information,"2 was conducted by Eugene F. Fama, Lawrence Fisher, Michael Jensen, and Professor Richard Roll at the University of California, Los Angeles. The study concluded it takes five to sixty minutes for market prices to completely reflect new information — and that was in 1969. Fund managers try to exploit whatever slight gain might be had by reacting quickly to a news story, but the likelihood of them consistently being on the right side of a trade in reaction to the news is extremely low.

    -1 Robert C. Higgins, Analysis for Financial Management (New York: McGraw-Hill/Irwin, 2004).
    -2 Eugene F. Fama, Lawrence Fisher, Michael Jensen, and Richard Roll, "The Adjustment of Stock Prices to New Information," International Economic Review, vol. 10, no. 1 (1969).
Step 4Robert C. HigginsEugene F. FamaLawrence FisherMichael JensenRichard Roll