We examine how media reports influenced trading volumes and order imbalances on the Sydney Stock Exchange (SSX) from 1901 to 1950, focusing on wool market reports as a substitute for broader financial advice in the absence of a specialised investment press. Given wool's status as Australia's primary export and its integration with various sectors, we construct a weekly media sentiment index based on news about wool sales and auctions from the Sydney Morning Herald. Our findings reveal that positive news about the wool market correlates with increased trading volumes and reduced order imbalances on the SSX. This relationship persisted during significant events such as the UK government's wool purchase plans, the 1929 Wall Street Crash, World War II-related trading restrictions, and the short selling ban.

A noisy rational expectations model of asset trading is extended to incorporate costs of information acquisition and expectation formation. Because of the information costs, how much information to acquire becomes an important decision. Agents make this decision by choosing an expectations strategy about the future value of information. Because expectation formation is costly, agents often choose strategies that are simpler (and thus cheaper) than rational expectations. The model's dynamics can be expressed in terms of the market precision, which represents the amount of information acquired by the average agent. Under certain conditions, market precision follows an unstable and highly irregular time path. This irregularity directly affects observable market quantities. In particular, simulated time series for return volatility and trading volume display a copersistence similar to that found in actual financial data.