Do Investors perceive that Stock Positions create a Conflict of Interest? Evidence from Stock Opinions Transmitted Through Social Media

• In Event: Perceptions of Non-financial Information

Abstract

Motivated by regulator concerns that analysts’ financial positions in firms they follow present a conflict of interest that impairs their objectivity, we examine investor perceptions of financial positions of authors on the social media outlet SeekingAlpha (hereafter SA) and offer three primary findings. First, an author’s long (short) positions are positively (negatively) associated with short-window returns surrounding the article’s publication, suggesting that financial positions convey information about the author’s overall opinion of the firm and that investors perceive these SA authors to be credible. Second, we find that the price response attributed to article tone is significantly stronger for articles authored by individuals with stock positions (i.e., skin in the game). Our results suggest that investors perceive authors with short positions to be more credible regardless of their tone, but that authors with long positions are only more credible when they write articles with negative tone. Finally, investors appear to find authors with short positions that write articles with a positive tone (i.e., short authors that write with a tone that is opposite to their underlying financial position) to be the most credible of all. Overall, our results suggest that the disclosure of an author’s financial positions enhances their credibility with investors.

Authors

• John L. Campbell, University of Georgia

• Matthew David DeAngelis, Georgia State University

• James Robert Moon, Georgia State University