Swarm Intelligence? Stock Opinions of the Crowd and Stock Returns

International Review of Economics and Finance 64, November 2019, 443-464.

48 Pages Posted: 1 Jun 2016 Last revised: 13 Nov 2019

See all articles by Bastian Breitmayer

Bastian Breitmayer

Leuphana University of Lueneburg

Filippo Massari

University of Bologna, Department of Economics

Matthias Pelster

University of Duisburg-Essen - Mercator School of Management; european center for financial services (ecfs)

Date Written: June 21, 2017

Abstract

We find that crowds' analyses of stocks, disclosed on a social trading platform, provide explanatory power for stock returns. Exploiting a novel dataset that contains more than 14.9 million individual stock assessments for 10,452 stocks over the period from August 1, 2007, to July 15, 2015, our study shows that social trading platforms add valuable information for explaining future and abnormal stock returns. We find that a portfolio based on social media opinions yields a monthly excess return of 3.3%. We provide a theoretical rationale for our findings based on the argument that the platform is subject to fewer institutional restrictions and is designed more efficiently for prediction than financial markets.

Keywords: social trading, crowd intelligence, stock returns, abnormal returns

JEL Classification: D14, G11, G23

Suggested Citation

Breitmayer, Bastian and Massari, Filippo and Pelster, Matthias, Swarm Intelligence? Stock Opinions of the Crowd and Stock Returns (June 21, 2017). International Review of Economics and Finance 64, November 2019, 443-464. , Available at SSRN: https://ssrn.com/abstract=2787744 or http://dx.doi.org/10.2139/ssrn.2787744

Bastian Breitmayer

Leuphana University of Lueneburg ( email )

Scharnhorststraße 1
Wilschenbrucher Weg 69
Lüneburg, 21335
Germany

Filippo Massari

University of Bologna, Department of Economics ( email )

Bologna
Italy

Matthias Pelster (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany

european center for financial services (ecfs) ( email )

Lotharstraße 65
Duisburg, 47057
Germany

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