Internet Investment Advice: Investing with a Rock of Salt
44 Pages Posted: 2 May 2000
There are 2 versions of this paper
Internet Investment Advice: Investing with a Rock of Salt
Date Written: January 2000
Abstract
This study investigates the value contained in stock recommendations posted on two Internet newsgroups. I estimate the quality of the advice using conventional abnormal return methodology around the posting date. I find that stocks recommended do not earn any significant cumulative abnormal return over the next 5, 10 and 20 trading days. I also report that the posters tend to select stocks with extreme recent performance. Sixty percent of the stocks recommended significantly out-performed their benchmark. However, only the stocks in the lower quintiles of prior performance generate significant abnormal returns whereas top prior performers encounter significant under-performance subsequent to the posting. Posters exhibit over-confidence in believing that any new product introduction or possibility of a business alliance will always generate positive returns to companies.
JEL Classification: G14, G19
Suggested Citation: Suggested Citation
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