The democratization of investment research and the informativeness of retail investor trading

Michael Farrell, T. Clifton Green, Russell Jame, Stanimir Markov

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

We study the effects of social media on the informativeness of retail trading. Our identification strategy exploits the editorial delay between report submission and publication on Seeking Alpha, a popular crowdsourced investment research platform. We find the ability of retail order imbalances to predict the cross-section of stock returns and cash-flow news increases sharply in the intraday post-publication window relative to the pre-publication window. The findings are robust to controlling for report tone and stronger for reports authored by more capable contributors. The evidence suggests that recent technology-enabled innovations in how individuals share information help retail investors become better informed.

Original languageEnglish
Pages (from-to)616-641
Number of pages26
JournalJournal of Financial Economics
Volume145
Issue number2
DOIs
StatePublished - Aug 2022

Bibliographical note

Funding Information:
Jame acknowledges a research grant from University of Kentucky's Institute for Free Enterprise

Funding Information:
We thank Dan Bradley, Suzanne Chang (discussant), Huaizi Chen (discussant), Alex Chinco (discussant), Frank Heflin (discussant), Byoung-Hyoung Hwang, Eric Kelley (discussant), Petra Vokata (discussant), Ming Shou (discussant), Musa Subasi (discussant), and seminar participants at the 2019 SFS Cavalcade, the 2019 Western Finance Association Meeting, the 2019 UConn Finance Conference, the 2019 Northern Finance Association, the 2019 Midwest Finance Association, the 2019 FARS Midyear Meeting, the 2019 Smokey Mountain Finance Conference, the 2019 Hawaii Accounting Research Conference, the Second Conference on Intelligent Information Retrieval in Accounting and Finance, Auburn University, Boston College, Middle Tennessee State University, Tulane University, and the University of Kentucky for helpful comments, and we thank Yanbin Wu for excellent research assistance. We thank Seeking Alpha for providing the data and George Moriarty (Executive Editor, VP Content) for details of the platform. Part of the work was completed while Farrell was a Darden Post-Doctoral Fellow at the University of Virginia. Jame acknowledges a research grant from University of Kentucky's Institute for Free Enterprise

Publisher Copyright:
© 2021

Keywords

  • Informed trading
  • Investment research
  • Retail investors
  • Seeking alpha

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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