The Role of Online Freelance Stock Analysts in Correcting Overly Pessimistic Market Sentiment

Abstract

We examine the role of online freelance stock analysts in correcting mispricing of hard-to-value firms during sentiment-driven market periods. We analyze the tone of stock articles posted in SeekingAlpha.com. The analysis reveals that the degree of negative tone of their stock articles is related to 3-day stock returns around the article posting dates. It further reveals that the relation between these returns and prevailing market sentiment depends on firm-specific susceptibility to the market sentiment. The 3-day stock returns are higher during low market sentiment periods for firms that are more susceptible to the market sentiment, hence, harder to value. The tone of the stock articles during low sentiment periods also predicts the news in the forthcoming earnings. Overall, our findings help stock investors identify value-relevant information provided by online freelance stock analysts, particularly for hard-to-value stocks and during the low market sentiment period.

Keywords: Market Sentiment, Market Guidance, Negative Tone, Online Stock Analysts