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

48 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

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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