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

34 Pages Posted: 9 Mar 2015

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Yi Dong

Shanghai University of Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2015

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, Competition, Information provision, Social media

JEL Classification: G30, M41

Suggested Citation

Massa, Massimo and Zhang, Hong and Dong, Yi, Guru Dreams and Competition: An Anatomy of the Economics of Blogs (March 2015). CEPR Discussion Paper No. DP10470. Available at SSRN: https://ssrn.com/abstract=2575774

Massimo Massa

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

Yi Dong (Contact Author)

Shanghai University of Finance and Economics ( email )

Shanghai, Shanghai 200433
China

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