Eli Hoffmann, senior vice president of content and editor in chief of SeekingAlpha.com, writes that recent research has shown that the more a post on its site is read, the more likely the stock mentioned in the post will move.
Hoffmann writes, “The researchers looked at pageviews and reads-to-end (how many readers finished reading an article) for articles that were destined to be predictive of future returns, and for articles that were destined to be counter-predictive of future returns. They also measured the acrimoniousness of those articles’ comments. They found, astonishingly, that during the first 48 hours after publication, articles that were destined to be predictive of future returns had above average page-views, above average reads-to-end, and unacrimonious comment streams, while articles that were destined to be counter-predictive had below average page-views, below average reads-to-end, and acrimonious comment streams. In other words, crowd behavior was a leading indicator of which predictions would be right, and which would be wrong.
“Other points from the study that weren’t obvious from the Journal article:
- Researchers discounted stock performance during the first 48 hours after publication in order to remove from performance data immediate reactions to articles being published.
- The researchers looked at the ability of Seeking Alpha articles to predict not only future stock returns, but also future earnings surprises. This was in order to discount for the possibility that the phenomenon was simply a case of a large platform influencing future stock prices rather than predicting them. Future prices could in theory be influenced by crowd behavior, but investors have no ability to influence future earnings surprises.
- SA articles and comments predicted stock returns over every time-frame examined: three months, six months, one year and three years. This was not true of previous studies of the predictive value of Twitter and Internet message boards, which demonstrated no predictive value. Previous studies of sell-side research demonstrated some predictive value over short time frames that disappeared over longer time frames.
- Further demonstrating the value of crowd-sourced research, they found that in cases of broad-based disagreement between authors and the community, community sentiment was more accurate in predicting future stock prices and earnings surprises.”
Read more here.
