The Democratization of Investment Research: Implications for Retail Investor Profitability and Firm Liquidity

45 Pages Posted: 22 Aug 2018 Last revised: 11 Nov 2018

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: August 1, 2018

Abstract

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

Farrell, Michael and Green, T. Clifton and Jame, Russell and Markov, Stanimir, The Democratization of Investment Research: Implications for Retail Investor Profitability and Firm Liquidity (August 1, 2018). 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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