The role of online freelance stock analysts in correcting overly pessimistic market sentiment
ISSN: 0307-4358
Article publication date: 29 June 2018
Issue publication date: 6 August 2018
Abstract
Purpose
The purpose of this paper is to examine the role of online freelance stock analysts in correcting mispricing of hard-to-value firms during sentiment-driven market periods.
Design/methodology/approach
The sample covers 23,758 Seeking Alpha articles obtained for the period between January 2005 and September 2011. The authors use OLS regressions to test the stock market reaction around Seeking Alpha analysts’ reports. The information in online analysts’ reports is measured by the tone of stock articles posted in SeekingAlpha.com (SA).
Findings
The analysis reveals that the degree of negative tone of their stock articles is related to three-day stock returns around the article posting dates. It further reveals that the relation between these returns and prevailing market sentiment depends on firm-specific susceptibility to the market sentiment. The three-day stock returns are higher during low market sentiment periods for firms that are more susceptible to the market sentiment, hence, harder to value. The tone of the stock articles during low sentiment periods also predicts the news in the forthcoming earnings.
Practical implications
The findings help stock investors identify value-relevant information provided by online freelance stock analysts, particularly for hard-to-value stocks and during the low market sentiment period.
Originality/value
This study utilizes a unique dataset obtained from SA. This is the first paper to examine whether online analysts help investors correct potential undervaluation of hard-to-value firms during the low market sentiment period.
Keywords
Citation
Kim, M., Kim, R., Oh, O. and Rao, H.R. (2018), "The role of online freelance stock analysts in correcting overly pessimistic market sentiment", Managerial Finance, Vol. 44 No. 8, pp. 954-971. https://doi.org/10.1108/MF-12-2016-0333
Publisher
:Emerald Publishing Limited
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