Why news is already in the price
By the time a headline reaches you, professional market participants have long since processed it. Only the unexpected part is tradable, and you never see that part.
Price-relevant news gets processed within seconds, often by programs that parse the text automatically. By the time you read about it, the move has already happened.
That's why the reflex to buy on good news usually means buying at an already-adjusted price. You're paying for information that's no longer information.
There's a saying that rumors get bought and facts get sold. Behind it sits exactly this mechanism: expectation drives the price, and once the event actually happens, the reason for the move is used up.
What follows is reassuring. You don't need to follow the news to invest successfully. The idea that you must stay well informed costs a lot of people time and nerves, without improving their results.
Event studies show that most of the price adjustment to scheduled releases like quarterly earnings happens within seconds to minutes. The reaction correlates with the deviation from the consensus estimate, not with the absolute value of the news.
At the same time, a documented drift effect exists following earnings surprises, where adjustment continues over weeks. This effect sits in tension with the strict efficiency assumption, but it's small relative to transaction costs and requires systematic, broadly diversified implementation to even be captured.
For retail investors, this implies no tradable opportunity, but rather a statement about information structure: the edge doesn't lie in faster access to news, but at most in a longer time horizon than the market average. The willingness to endure fluctuations over years is the one structural advantage actually available to a retail investor.
Summary
- Adjustment to a headline happens within seconds.
- Following the news doesn't improve your investment result.
- Your one structural advantage is a longer time horizon.
Did you get it?
How fast do markets process scheduled releases?
Most of the adjustment happens within seconds to minutes.
What does buying rumors and selling facts mean?
Expectation drives the price. Once the event happens, the reason for the move is used up.
Where does a retail investor's one structural advantage lie?
In a longer time horizon and the willingness to endure fluctuations.
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