Seeking Analysts: User-Generated Analyst Coverage and Stock Market Quality

57 Pages Posted: 5 Apr 2023

See all articles by Jörg Claussen

Jörg Claussen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management); Copenhagen Business School - Department of Innovation and Organizational Economics

Rouven Litterscheidt

Ludwig-Maximilians-Universität München, LMU Munich School of Management

David Streich

Catholic University of Eichstaett-Ingolstadt - Ingolstadt School of Management

Abstract

Does user-generated analyst coverage improve the market quality of covered stocks? We use articles published on the platform SeekingAlpha and measure market quality using trading volume, share turnover, and bid-ask spreads. To account for endogenous stock selection, we employ (i) an instrumental variables approach exploiting two changes in the platform’s monetary incentive structure and (ii) a difference-in-differences approach using propensity score matching. We find that user-generated analyst coverage increases trading and turnover, while the effect on bid-ask spreads is ambiguous: while we observe a substantial decrease in quarters with coverage, we find no effect in the month following initiation. The effects are more pronounced for smaller stocks without professional analyst coverage. We identify increased (retail) investor attention as the likely driver of the observed effects.

Keywords: analyst coverage, user-generated analyst coverage, market quality, online investment platforms

Suggested Citation

Claussen, Jörg and Litterscheidt, Rouven and Streich, David, Seeking Analysts: User-Generated Analyst Coverage and Stock Market Quality. Available at SSRN: https://ssrn.com/abstract=4410560 or http://dx.doi.org/10.2139/ssrn.4410560

Jörg Claussen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Copenhagen Business School - Department of Innovation and Organizational Economics ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Rouven Litterscheidt

Ludwig-Maximilians-Universität München, LMU Munich School of Management ( email )

Schackstraße 4
Munich, DE Bavaria 80539
Germany

David Streich (Contact Author)

Catholic University of Eichstaett-Ingolstadt - Ingolstadt School of Management ( email )

Finance and Banking Department
Catholic University of Eichstaett-Ingolstadt
Ingolstadt, 85049
Germany

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