The Democratization of Investment Research: Implications for Retail Investor Profitability and Firm Liquidity
45 Pages Posted: 22 Aug 2018 Last revised: 11 Nov 2018
Date Written: August 1, 2018
We find evidence that crowdsourced investment research facilitates informed trading by retail investors and improves firm liquidity. Specifically, retail order imbalances are strongly correlated with the sentiment of Seeking Alpha articles, and the ability of retail order imbalances to predict returns is roughly twice as large on research article days. In addition, firms with exogenous reductions in Seeking Alpha coverage experience increases in bid-ask spreads and price impact, with the effect being stronger for firms with high retail ownership. Our findings suggest that technological innovations have helped democratize access to investment research with important implications for firm liquidity.
Keywords: Investment Research, Seeking Alpha, Retail Investors, Information Asymmetry
JEL Classification: G14
Suggested Citation: Suggested Citation