THE stock market is always filled with lots of rumours. Some may be true while others may have certain intended purposes. However, rumours can cause a great impact on companies’ stock prices.
The stock market always says that we should buy on rumours and sell on facts. Certain rumours may not be true but traders may still be able to benefit by buying the stocks based on the rumours and sell immediately once the concerned parties correct the rumours and reveal the actual facts. In this article, we will look into the various types and characteristics of stock market rumours.
What is a rumour? It is information that is not verified, but it is important and the recipients may be interested to know more about it. In most times, it is created to cause others to believe in it. It can reach out to a large group of people by transmitting through the mass media.
Over the past few weeks, there was one plantation company faced with some negative news. Some investors who owned the stock sold some of their holdings as they were worried that the rumours might be true.
Even though some of the negative rumours were true, the real impact was not as bad as the rumours that had been circulating in the market. Hence, we should not be trapped into panic selling.
Given that investors always overact on rumours, we need to be careful and check further whether those negative rumours may have been reflected in the stock prices.
Based on a study by Ralph L. Rosnow (1991) titled “Inside rumour”, there are three main types of rumours - wish, dread and non-involvement rumours.
Wish rumours are intended to create hope for some positive consequences to happen whereas dread rumours are intended to create fear and cause some disappointing consequences. Non-involvement rumours will not cause any impact to the recipients.
However, some will still want to spread them as they want to show that they are knowledgeable or they just like to do it.
How do we deal with rumours? Should we ignore or pay attention to them?
In Malaysia, based on our experience, most of the negative rumours on certain companies are true.
We need to pay attention to them. We may need to check further on the real impact from those rumours if we own the stocks. Even though sometimes they may not be true, we feel that it is safer to avoid holding on to such stocks.
On the other hand, we should put less weight on positive rumours. Sometimes certain owners like to liquidate their holdings by creating positive rumours.
Once the general public start to believe in them and start chasing the stocks, normally they will be the main sellers of those stocks. Some examples of these rumours are like “The managing director of this company is buying the stock”, “This company may be able to get some big contracts from the Government”, etc.
The stock market always says that we should buy on rumours and sell on facts. Certain rumours may not be true but traders may still be able to benefit by buying the stocks based on the rumours and sell immediately once the concerned parties correct the rumours and reveal the actual facts. In this article, we will look into the various types and characteristics of stock market rumours.
What is a rumour? It is information that is not verified, but it is important and the recipients may be interested to know more about it. In most times, it is created to cause others to believe in it. It can reach out to a large group of people by transmitting through the mass media.
Over the past few weeks, there was one plantation company faced with some negative news. Some investors who owned the stock sold some of their holdings as they were worried that the rumours might be true.
Even though some of the negative rumours were true, the real impact was not as bad as the rumours that had been circulating in the market. Hence, we should not be trapped into panic selling.
Given that investors always overact on rumours, we need to be careful and check further whether those negative rumours may have been reflected in the stock prices.
Based on a study by Ralph L. Rosnow (1991) titled “Inside rumour”, there are three main types of rumours - wish, dread and non-involvement rumours.
Wish rumours are intended to create hope for some positive consequences to happen whereas dread rumours are intended to create fear and cause some disappointing consequences. Non-involvement rumours will not cause any impact to the recipients.
However, some will still want to spread them as they want to show that they are knowledgeable or they just like to do it.
How do we deal with rumours? Should we ignore or pay attention to them?
In Malaysia, based on our experience, most of the negative rumours on certain companies are true.
We need to pay attention to them. We may need to check further on the real impact from those rumours if we own the stocks. Even though sometimes they may not be true, we feel that it is safer to avoid holding on to such stocks.
On the other hand, we should put less weight on positive rumours. Sometimes certain owners like to liquidate their holdings by creating positive rumours.
Once the general public start to believe in them and start chasing the stocks, normally they will be the main sellers of those stocks. Some examples of these rumours are like “The managing director of this company is buying the stock”, “This company may be able to get some big contracts from the Government”, etc.
Rumour vs Sources
A rumour cannot travel very far if its source is not reliable. If a rumour is spreading through a reliable mass media, then it can travel very far, last longer and can cause a major impact.
Once, the rumours have been generated and start transmitting, there will be some changes to the original messages.
According to Gordon Willard Allport and Leo Joseph Postman in their study titled “The basic psychology of rumour”, there are three levels of changes to the messages - levelling, sharpening and assimilation.
At the first level, when the rumour travels, it gets shorter and more concise. This is to help it to be understood easily in order to travel further.
At the sharpening level, a lot of details will be left out. As a result, it will become clearer and more focused and can have greater intended impact. At the assimilation level, in order to have a greater impact to the recipients, the rumour will be added on with certain elements that are in line with the recipients’ habits, interests and sentiments.
Understanding stock market rumours can help us to know how to deal with them. In short, we should pay less attention to positive rumours.
Instead, place more attention to negative rumours on certain companies, especially those that we are interested in.
Once, the rumours have been generated and start transmitting, there will be some changes to the original messages.
According to Gordon Willard Allport and Leo Joseph Postman in their study titled “The basic psychology of rumour”, there are three levels of changes to the messages - levelling, sharpening and assimilation.
At the first level, when the rumour travels, it gets shorter and more concise. This is to help it to be understood easily in order to travel further.
At the sharpening level, a lot of details will be left out. As a result, it will become clearer and more focused and can have greater intended impact. At the assimilation level, in order to have a greater impact to the recipients, the rumour will be added on with certain elements that are in line with the recipients’ habits, interests and sentiments.
Understanding stock market rumours can help us to know how to deal with them. In short, we should pay less attention to positive rumours.
Instead, place more attention to negative rumours on certain companies, especially those that we are interested in.
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