Do Internet Stock Message Boards Influence Trading? Evidence from Heavily Discussed Stocks with No Fundamental News

29 Pages Posted: 14 Dec 2011

See all articles by Sanjiv Sabherwal

Sanjiv Sabherwal

University of Texas at Arlington - Department of Finance and Real Estate

Salil K. Sarkar

University of Texas at Arlington

Ying (Clement) Zhang

University of Texas at Arlington

Date Written: November/December 2011

Abstract

This study extends the literature on the information content of stock message boards. To better understand the effect of online postings on trading activities and reduce the error due to stocks with small message board followings, we examine stocks with no fundamental news and high message posting activity. Such stocks tend to be of small firms with weak financials. For those stocks, we find a two‐day pump followed by a two‐day dump manipulation pattern among online traders, which suggests that an online stock message board can be used as a herding device to temporarily drive up stock prices. We also find that online traders’ credit‐weighted sentiment index, but not the number of postings, is positively associated with contemporaneous return and negatively predicts the return next day and two days later. Also, absolute sentiment is negatively related with contemporaneous and next day's intraday volatility and positively related with the proportion of volume in small‐sized trades. We conclude that message board sentiment is an important predictor of trading‐related activities.

Keywords: internet stock message board, online trading, investor sentiment, noise trader, naïve bayesian, text classifier

Suggested Citation

Sabherwal, Sanjiv and Sarkar, Salil K. and Zhang, Ying, Do Internet Stock Message Boards Influence Trading? Evidence from Heavily Discussed Stocks with No Fundamental News (November/December 2011). Journal of Business Finance & Accounting, Vol. 38, Issue 9‐10, pp. 1209-1237, 2011, Available at SSRN: https://ssrn.com/abstract=1972098 or http://dx.doi.org/10.1111/j.1468-5957.2011.02258.x

Sanjiv Sabherwal

University of Texas at Arlington - Department of Finance and Real Estate ( email )

Box 19449 UTA
Arlington, TX 76019
United States
817-272-3705 (Phone)
817-272-2252 (Fax)

Salil K. Sarkar

University of Texas at Arlington ( email )

415 S West St Apt no 205
Arlington, TX 76013
United States

Ying Zhang

University of Texas at Arlington ( email )

415 S West St Apt no 205
Arlington, TX 76019
United States

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