Fifteen Minutes of Fame? The Market Impact of Internet Stock Picks
Morgan Stanley Dean Witter & Co. Inc.
Federal Reserve Bank of New York
Staff Report No. 158, January 2003
AFA 2003 Washington, DC Meetings
We examine 120 Nasdaq and Over-the-Counter "buy" recommendations made by Internet sites from April 1999 to June 2001. The stock picks show substantial short and long run price and liquidity gains, although no new information is revealed about them. For example, one year after the pick month, turnover is higher for these stocks compared to a sample matched by size, book-to-market value, and liquidity. We find that, after controlling for fundamental and microstructure factors, stocks with lower initial liquidity have proportionately greater improvements in liquidity on the pick day. Further, stocks with lower initial liquidity and higher pick-day liquidity have higher pick-day excess returns. These results support the idea that stocks have multiple liquidity equilibria, and that the stock picks, by coordinating uninformed trading activity, push initially illiquid stocks to a higher liquidity equilibrium.
Number of Pages in PDF File: 56
Keywords: liquidity externality, internet stock picks
JEL Classification: G10, G14working papers series
Date posted: September 29, 2002
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