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The democratization of investment research and the informativeness of retail investor trading

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  • Farrell, Michael
  • Green, T. Clifton
  • Jame, Russell
  • Markov, Stanimir

Abstract

We study the effects of social media on the informativeness of retail trading. Our identification strategy exploits the editorial delay between report submission and publication on Seeking Alpha, a popular crowdsourced investment research platform. We find the ability of retail order imbalances to predict the cross-section of stock returns and cash-flow news increases sharply in the intraday post-publication window relative to the pre-publication window. The findings are robust to controlling for report tone and stronger for reports authored by more capable contributors. The evidence suggests that recent technology-enabled innovations in how individuals share information help retail investors become better informed.

Suggested Citation

  • Farrell, Michael & Green, T. Clifton & Jame, Russell & Markov, Stanimir, 2022. "The democratization of investment research and the informativeness of retail investor trading," Journal of Financial Economics, Elsevier, vol. 145(2), pages 616-641.
    • Handle: RePEc:eee:jfinec:v:145:y:2022:i:2:p:616-641
    DOI: 10.1016/j.jfineco.2021.07.018
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