Investor Reliance on the Crowd
46 Pages Posted: 4 Apr 2017
Date Written: March 28, 2017
Using Yahoo Finance search data, we document that when investors search for investment information they by far and large rely on the information of crowds. The results indicate that this reliance significantly varies across industries, and is most pronounced in firms with greater uncertainty and weaker information environments. Moreover, significant increases in the reliance on message boards consistently predict future negative stock returns and increases in information asymmetry, suggesting that investors’ increasing reliance on crowds provides insights into their expectations of firm performance and future sell-offs.
Keywords: Investor reliance, crowd information, negative returns, uncertainty, information environment
JEL Classification: M41, G11, G14
Suggested Citation: Suggested Citation