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

62 Pages Posted: 22 Aug 2018 Last revised: 18 Oct 2019

See all articles by Michael Farrell

Michael Farrell

University of Kentucky, Gatton College of Business and Economics, Department of Finance & Quantitative Methods

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: October 15, 2019

Abstract

We explore whether crowdsourced investment research published on Seeking Alpha (SA) facilitates the process by which retail investors become informed. We find a sharp increase in retail trading within 30 minutes of publication that is directionally consistent with article sentiment. Moreover, the relation between retail order flow and future returns is three times as large on days when SA research articles are published. The incremental informativeness is stronger for articles that generate many comments or are authored by skilled contributors. Retail order flow on days with SA research also predicts future media article tone, consistent with retail trading being information-driven.

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 (October 15, 2019). Available at SSRN: https://ssrn.com/abstract=3222841 or http://dx.doi.org/10.2139/ssrn.3222841

Michael Farrell

University of Kentucky, Gatton College of Business and Economics, Department of Finance & Quantitative Methods ( email )

Lexington, KY 40506
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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