Should Retail Investors Listen to Social Media Analysts? Evidence from Text-Implied Beliefs

69 Pages Posted: 29 Mar 2021 Last revised: 24 May 2021

See all articles by Chukwuma Dim

Chukwuma Dim

Frankfurt School of Finance & Management

Date Written: March 20, 2021


Social media is increasingly affecting financial markets, with important implications for market efficiency. This paper uses machine learning to infer beliefs of nonprofessional social media investment analysts (SMAs) from opinions expressed about individual stocks on social media. On average, SMA beliefs are informative about future abnormal returns and earnings surprise. However, there exists substantial heterogeneity in SMAs' ability to form beliefs that generate value. A small fraction, 10%, of SMAs form beliefs that yield a sizeable abnormal return of 56 bps over a 5-day window, while the remaining 90% generate only 6 bps over the same horizon. SMA characteristics such as specialization, skin in the game, effort, popularity, and disagreement matter for belief formation skill. When forming beliefs, SMAs herd on the consensus; herding is less pronounced in bad times and when the consensus is optimistic, but more pronounced when the consensus is correct ex-post. SMAs also extrapolate from past returns but are less bullish about lottery-type stocks.

Keywords: Nonprofessional analysts, Belief formation, Investor skill, Market efficiency, Herding, Extrapolation, Machine learning, Natural language processing

JEL Classification: G11, G12, G14

Suggested Citation

Dim, Chukwuma, Should Retail Investors Listen to Social Media Analysts? Evidence from Text-Implied Beliefs (March 20, 2021). Available at SSRN: or

Chukwuma Dim (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics