Do markets pay attention to political disinformation?

• Fake news has proliferated in political campaigns. • This paper examines fake news during the 2016 US presidential election. • Financial markets in the US saw no change in returns during high fake news days. • Fake news dampened market volatility. • Pro-Hillary Clinton fake news dampened market volatility the most. They do, but not in ways one might think. Using an example from the 2016 Presidential election in the United States, we show that days with heavy doses of disinformation related to the candidates do not affect broad index stock returns. However, disinformation that was strongly pro-Hillary Clinton was associated with a substantial lowering of conditional volatility of stocks, even when controlling for other macroeconomic news and news sentiment.