The Democratization of Investment Research and the Informativeness of Retail Investor Trading

78 Pages Posted: 22 Aug 2018 Last revised: 22 Jul 2020

See all articles by Michael Farrell

Michael Farrell

University of Virginia - Darden School of Business

T. Clifton Green

Emory University - Department of Finance

Russell Jame

University of Kentucky - Gatton College of Business and Economics

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: July 21, 2020

Abstract

We study the effects of social media on the informativeness of retail investor trading. Our identification strategy exploits the editorial delay between report submission and publication on Seeking Alpha, a popular crowdsourced investment research platform. We find the ability of retail order imbalances to predict stock returns and cash-flow news increases sharply in the intraday post-publication window relative to the pre-publication window. The findings are robust to controlling for report tone and stronger for reports authored by more capable contributors. The evidence suggests that technology-enabled innovations in how individuals share information can play a positive role in retail-investor decision making.

Keywords: Investment Research, Seeking Alpha, Retail Investors, Informed Trading

JEL Classification: G14

Suggested Citation

Farrell, Michael and Green, T. Clifton and Jame, Russell and Markov, Stanimir, The Democratization of Investment Research and the Informativeness of Retail Investor Trading (July 21, 2020). Available at SSRN: https://ssrn.com/abstract=3222841 or http://dx.doi.org/10.2139/ssrn.3222841

Michael Farrell

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

T. Clifton Green

Emory University - Department of Finance ( email )

1300 Clifton Rd.
Atlanta, GA 30322-2710
United States
404-727-5167 (Phone)
404-727-5238 (Fax)

Russell Jame (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States

HOME PAGE: http://russelljame.com

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972 883 5166 (Phone)

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