Wisdom Of Crowds Flashcards
What are the two channels through which social media affects investors?
Predictability Channel: Social media posts contain value-relevant information that influences stock prices over time.
Clout Channel: Social media moves prices through sentiment-driven trading, even if the information is false or spurious.
How does negative sentiment in Seeking Alpha (SA) articles impact stock returns?
A 1% increase in negative words in SA articles leads to future stock returns being 0.332% lower.
What is the impact of negative sentiment in Seeking Alpha (SA) comments on stock returns?
For SA comments, the effect is 0.194% lower returns.
What are the incentives for Seeking Alpha contributors to post stock opinions?
Monetary compensation: $10 per 1,000 page views, with high-quality articles earning more.
Recognition: Successful authors gain visibility, with their articles cited in media outlets like Forbes and WSJ.
What role does the public feedback mechanism on Seeking Alpha play in financial analysis?
It allows readers to challenge weak arguments, improving the accuracy of investment insights.
How does social media-based financial analysis compare to traditional analyst reports?
Social media-driven stock opinions often outperform professional analysts in predicting future stock returns.
What does the ‘Wisdom of the Crowd’ principle mean in financial markets?
It suggests that collective opinions from a diverse group of investors can be highly accurate, sometimes even more so than individual experts.
Under what conditions does social media-based investment research provide the most value?
When credible authors with strong track records post insightful analysis and when readers engage critically.
Why might the ‘Clout Channel’ be less influential than the ‘Predictability Channel’?
The lack of return reversals suggests that social media-based price movements are justified and not purely speculative.
How has social media changed the role of investment analysis?
Social media has democratized investment analysis, allowing retail investors to share and consume stock opinions.
What percentage of U.S. investors relied on social media for investment decisions by 2008?
By 2008, 25% of U.S. investors relied on social media for investment decisions.
Do investor opinions on social media predict stock returns?
Yes. Social media opinions, particularly negative ones, predict future stock returns and earnings surprises.
How does negative sentiment in Seeking Alpha (SA) articles affect earnings surprises?
A 1% increase in negative words in SA articles is linked to earnings surprises being 0.232% to 0.266% below market expectations.
What is the effect of negative comments on Seeking Alpha (SA) earnings surprises?
A 1% increase in negative words in SA comments is linked to earnings surprises being 0.094% to 0.095% lower than expected.
Why do SA contributors with strong past track records have greater market influence?
SA authors with consistent, accurate past predictions gain credibility, making their analyses more impactful.
How does Seeking Alpha’s public feedback mechanism improve information quality?
Readers challenge misleading or weak arguments in comments, refining the accuracy of investment insights.
What are the incentives for Seeking Alpha contributors to post stock opinions?
SA authors earn $10 per 1,000 page views, with high-quality articles earning up to $500, alongside gaining industry recognition.
How do social media-driven stock opinions compare to traditional analyst reports?
Social media opinions outperform financial analysts in predicting stock price movements.
What is the key takeaway from the ‘Wisdom of Crowds’ study?
Peer-based advice on Seeking Alpha provides meaningful insights, with negative sentiment consistently predicting lower stock returns.
Under what conditions does the ‘Wisdom of the Crowd’ work effectively?
The accuracy of social media predictions depends on author credibility and reader interactions.
How is investment research shifting due to social media?
Platforms like Seeking Alpha challenge traditional analysts by democratizing financial information.
