Internet Investment Advice: Investing with a Rock of Salt

44 Pages Posted: 2 May 2000

See all articles by Michaël Dewally

Michaël Dewally

Towson University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 2000


This study investigates the value contained in stock recommendations posted on two Internet newsgroups. I estimate the quality of the advice using conventional abnormal return methodology around the posting date. I find that stocks recommended do not earn any significant cumulative abnormal return over the next 5, 10 and 20 trading days. I also report that the posters tend to select stocks with extreme recent performance. Sixty percent of the stocks recommended significantly out-performed their benchmark. However, only the stocks in the lower quintiles of prior performance generate significant abnormal returns whereas top prior performers encounter significant under-performance subsequent to the posting. Posters exhibit over-confidence in believing that any new product introduction or possibility of a business alliance will always generate positive returns to companies.

JEL Classification: G14, G19

Suggested Citation

Dewally, Michaël, Internet Investment Advice: Investing with a Rock of Salt (January 2000). Available at SSRN: or

Michaël Dewally (Contact Author)

Towson University - Department of Finance ( email )

8000 York Road
Suite 316 L
Baltimore, MD 21252-0001
United States
410-704-4902 (Phone)

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