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Facebook’s Bizarre Friend Rally

On Wednesday night, investors learned plenty about Facebook’s (FB) financial details from the initial public offering paperwork it filed with regulators. They learned nothing new, however, about LinkedIn (LNKD), Zynga (ZNGA) or Groupon (GRPN).

Those companies, after all, went public last year. Investors have had plenty of time to inspect their regular financial reports and decide how much they’re worth.

But that didn’t stop their shares from jumping 5% to 15% by midday Thursday.

Why would investors suddenly decide these three firms are collectively worth more than $2 billion more than they were a day before? The stock market is supposed to be ruled by so-called rational agents, or traders who price in available information as soon as they learn it. But Thursday’s trading didn’t seem especially rational.

A study slated for publication in Management Science, an academic journal, offers some interesting parallels. It showed that stocks and Treasury futures respond–sharply–to stale information. That information is the Leading Indicators Index, published each month by the Conference Board. It’s based on a collection of other measures, all of which are previously published.

That makes the index a surprise to no one.

Yet the study authors, Thomas Gilbert at the University of Washington, Shimon Kogan at the University of Texas, Lars Lochstoer at Columbia and Ataman Ozyildirim at the Conference Board, demonstrate that a simple strategy of front-running the index by trading S&P 500 futures would have returned 8% a year over the 13 years ended 2009.

That’s like getting the stock market’s return without having to sit in the stock market, and it comes from using old news.

“The re-packaging of previously released information in the form of summary statistics may not be helpful to the inattentive, as it gives an opportunity for arbitrageurs to profit from agents that believe such statistics provide additional information beyond that already released,” wrote the authors in a working paper.

It looks like the inattentive are grabbing after shares of Facebook’s friends, too. The earliest traders have made good money, but it might come at the expense of those who hop into the trade late.

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