Guru Dreams and Competition: An Anatomy of the Economics of Blogs

35 Pages Posted: 6 Nov 2014 Last revised: 14 Feb 2015

See all articles by Yi Dong

Yi Dong

Shanghai University of Finance and Economics

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: November 5, 2014

Abstract

The rise of social media has encouraged guru dreams because of the low entry barrier and highly skewed distribution of public attention that characterize social media. The pursuit of guru status, however, may be achieved through information provision or cheap talk, and competition inherent to social media may incentivize participants to either process better information or express more extreme options. Using a unique dataset of blogs covering S&P 1500 stocks over the 2006-2011 period, we find evidence that social media can be informative about future stock returns but that competition distorts opinions rather than encouraging participants to process better information. In particular, competition induces exaggerated negative tones in blogs, which is unrelated to information. Our results suggest that social media may provide mixed incentives for its participants in terms of information efficiency.

Keywords: Blogs, Social media, Information provision, Competition

JEL Classification: G30, M41

Suggested Citation

Dong, Yi and Massa, Massimo and Zhang, Hong, Guru Dreams and Competition: An Anatomy of the Economics of Blogs (November 5, 2014). INSEAD Working Paper No. 2014/59/FIN; Asian Finance Association (AsianFA) 2015 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2519518 or http://dx.doi.org/10.2139/ssrn.2519518

Yi Dong

Shanghai University of Finance and Economics ( email )

Shanghai, Shanghai 200433
China

Massimo Massa (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

HOME PAGE: http://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html

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