The Cross-Section of Non-Professional Analyst Skill

46 Pages Posted: 19 Oct 2020

See all articles by Michael Farrell

Michael Farrell

University of Virginia - Darden School of Business

Russell Jame

University of Kentucky - Gatton College of Business and Economics

Tian Qiu

University of Kentucky - Gatton College of Business and Economics

Date Written: August 28, 2020

Abstract

We examine the cross-section of skill among non-professional analysts (NPAs) on Seeking Alpha, a prominent crowd-sourced investment research platform. We estimate that 60% of NPAs are skilled, and we document substantial dispersion in skill. Even after accounting for bid-ask spreads and allowing for a three-day investment delay, following NPAs in the top quintile of past skill earns annualized abnormal returns of 10%. In contrast, an unconditional strategy that follows all NPAs earns insignificant returns. An examination of retail and institutional order imbalances following NPA recommendations suggests that neither group recognizes the size-able differences in ability across NPAs.

Keywords: Social Media, Investment Research, Performance Persistence, Trading Strategy

JEL Classification: G11, G12, G14

Suggested Citation

Farrell, Michael and Jame, Russell and Qiu, Tian, The Cross-Section of Non-Professional Analyst Skill (August 28, 2020). Available at SSRN: https://ssrn.com/abstract=3682490 or http://dx.doi.org/10.2139/ssrn.3682490

Michael Farrell

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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

Tian Qiu

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States

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