Wisdom of the Institutional Crowd: Implications for Anomaly Returns

67 Pages Posted: 22 Sep 2022 Last revised: 1 May 2023

See all articles by AJ Chen

AJ Chen

University of Southern California - Marshall School of Business

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: March 31, 2023

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

Suggested Citation

Chen, AJ and Hoberg, Gerard and Zhang, Miao Ben, Wisdom of the Institutional Crowd: Implications for Anomaly Returns (March 31, 2023). USC Marshall School of Business Research Paper Sponsored by iORB, Available at SSRN: https://ssrn.com/abstract=4207132 or http://dx.doi.org/10.2139/ssrn.4207132

AJ Chen

University of Southern California - Marshall School of Business ( email )

Los Angeles, CA
United States

Gerard Hoberg (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://faculty.marshall.usc.edu/Gerard-Hoberg/

Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www.MiaoBenZhang.com/

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