Can Investors Benefit from the Wisdom of Crowds? Evidence from Wikipedia and Insider Trading

• In Event: Media and Information Intermediaries

Abstract

We investigate whether and how Wikipedia, the most popular of Internet-based platforms enabling the public to aggregate information from various sources, affects the information environment for corporate outsiders. We find that collaborative information aggregation on Wikipedia is negatively associated with the profitability of insider trades after controlling for alternative information sources and that the association is stronger for firms owned to a greater extent by retail investors, who are at a greater information disadvantage, and for firms that have larger foreign operations. We also find that collaborative information aggregation on Wikipedia is negatively associated with the number of insider trades based on private information about future earnings. Overall, our results suggest that Internet-enabled collaborative information aggregation reduces information asymmetry between insiders and outsiders and among outsiders.

Authors

• Alfred Zhu Liu, University at Albany, SUNY

• Sean Xin Xu, Tsinghua University

• Zhitao Yin, Georgia State University

• Xiaoquan Michael Zhang, The Hong Kong University of Science and Technology