Clogged Information Flow and Stock Market Sluggishness

Abstract

I provide evidence on the trading effects of the 1970 Newspaper and Mail Deliverers’ Union’s strike against The Wall Street Journal. I find that turnover falls significantly on the first few days of the strike, returns to normal, then even exceeds the average as the strike proceeds. The evidence is consistent with the idea that a clogged information flow causes sluggishness in the market but consumers of media substitute one source for another when their preferred source is clogged. The effects are widespread without regard to firm size or other firm characteristics. When information is clogged, I find that return comovement among assets increases. Finally, I also find that turnover is closely related to the publication of an article in the Journal and to positive and negative abnormal returns, but responds more to the latter.

Keywords: market efficiency, asset pricing, trading, microstructure

JEL Classification: G10, G14