Faster internet access makes the stock market less efficient by distracting investors with viral 'meme' content instead of financial data.
Using the rollout of 3G mobile broadband as a test, researchers found that better information access actually slowed down how quickly news was reflected in stock prices. Instead of using high-speed data to research companies, investors reallocated their limited attention toward high-salience, popular stocks, causing the market to become more homogenized and less accurate.
Attention Allocation and Price Discovery
SSRN · 6474762
We study how the allocation of investor attention shapes price discovery. When the cost of accessing public information falls, investors may reallocate attention from firmspecific signals toward common, high-salience content. This reallocation can compress idiosyncratic volatility while slowing the incorporation of information into prices. We formalize this in a model of limited attention and short-side crowding. To test these predictions, we exploit the staggered rollout of mobile broadband (3G