Asset Pricing in the Information Age: Employee Expectations and Stock Returns
63 Pages Posted: 31 Jan 2019 Last revised: 2 Mar 2019
Date Written: February 28, 2019
This paper studies the value of employees' expectations to stock markets, using a novel dataset of one million employee reviews. Employee beliefs about their employers' business prospects predict future returns at one- to five-month horizons, delivering an annualized abnormal return of 7% to 9%. Employee reviews are related to firms' fundamentals because they predict cash flow news. In addition, the reviews predict future trading activities by hedge funds and corporate insiders. Overall, this paper highlights that crowdsourced platforms can aggregate massive amounts of data and generate investment-relevant signals that are superior to more traditional sources.
Keywords: Employee expectations, stock returns, big data, social media, machine learning, textual analysis
JEL Classification: G14
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