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

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