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Skin in the Game: Personal Stock Holdings and Investors’ Response to Stock Analysis on Social Media

Time:2018-05-15 22:27:39  Hits:[]
Motivated by concerns that financial positions present a conflict of interest that impairs an analyst’s objectivity, we examine investor perceptions of the financial positions of authors providing stock analysis on the social media outlet Seeking Alpha (hereafter SA) and offer two primary findings. First, author positions contribute directly to short-window returns surrounding the article’s publication, holding constant the information in the article (i.e., tone, length, rigor, numerical content, etc.) as well as contemporaneously issued news (i.e., from professional analysts and the business press). Economically, long-authored articles correspond to a positive 2-day return of 0.4 percent, while short-authored articles correspond to returns of 1.0 percent over the same period. These findings suggest that an author’s stock positions convey information to investors, and that investors perceive SA authors to be credible. Second, we find that the price response attributed to article tone is significantly stronger for articles authored by individuals with stock positions, in all cases except when article tone is positive and the author holds a long position. In this latter case, investors do not perceive the tone to be more credible, but they also do not perceive the tone to be less credible either. Overall, our results suggest that the disclosure of an author’s financial positions enhances their credibility with investors.
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