The New York Fed's Liberty Street blog is featuring an interesting exercise in the power of breaking news headlines and "financial markets process news of unexpected events."  NY Fed researchers went back to 2008, when a "news" story about United Airlines' 2002 bankruptcy story mistakenly was re-posted on the Internet.  United stock took an immediate hit.  It did recover, but not for some time.  Here's a look at a chart from the post that shows the lag in United stock recovery:

From Liberty Street:

In short, we find that even in a situation where noise could be clearly singled out, it took markets about a week to fully process the signal component of news. Of course, in most circumstances, signal and noise arise simultaneously and cannot be separated so easily. Thus, normal delays may be longer than what we detect here.

Is a week a long time or not? It certainly is when the delay pertains to the reaction of asset prices to a piece of news. Most likely it isn’t when it comes to investment decisions of companies or industries. The key question is whether normal information delays are long and pervasive enough to affect those investment decisions. If they are, such delays could be costly for the economy.

Why did it take so long for the information to be processed? Our staff report investigates several potential explanations, but fails to find empirical evidence supporting any of them. In particular, explanations based on poor trading liquidity after the false news event, potential links to the financial market turmoil in September 2008, and uncertainty aversion by investors do not appear to be supported by the data. We therefore have to leave this question unanswered.

So even as the question remains unanswered, this exercise seems a good one, as we see news reports sending waves through the markets on a weekly basis, or even a daily basis.  In the 24 hour news cycle, more mistakes are likely to happen.  But even beyond mistakes, exaggerated headlines or misleading reports likely will have some impact.  Will that impact be lasting or temporary? Read How Well Do Financial Markets Separate News from Noise? Evidence from an Internet Blooper here.