News is Devoured in Minutes

Devouring the News
Devouring the News

In Analysis for Financial Management,1 Robert C. Higgins describes how market participants instantly devour new information, which is 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 Fama, Jensen et al, and concluded it takes five to 60 minutes for market prices to completely reflect new information. Given the study took place in 1969,  imagine how quickly market information travels today as investors worldwide instantly get market news on their smart phones. Fund managers seek to exploit any tiny possible gain by reacting quickly to news, but the likelihood that they will consistently be on the right side of a trade is non-existent.

    -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