Wisdom of the Institutional Crowd: Implications for Anomaly Returns

Abstract

Using over one million Wall Street Journal articles from 1980 to 2020, we create a novel measure of institutional investors’ crowd-sourcing based on their predictions in news media (InstPred). We show that for industries with higher excess InstPred, (i) value and momentum anomaly returns are 34% to 63% larger, and (ii) institutional investors collectively trade the anomalies more aggressively. Our results are reinforced by quasi-exogenous variation in industries’ investor-WSJ connections and cannot be explained by existing measures such as document tone. Our findings are consistent with institutional investors communicating with reputable news media to crowd-source information and expedite price correction.

Keywords: Media, Crowd Sourcing, Value Premium, Momentum, WSJ, Institutional Investors