The Cross-Section of Non-Professional Analyst Skill
46 Pages Posted: 19 Oct 2020
Date Written: August 28, 2020
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
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