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Do individual investors’ stock recommendations in online communities contain investment value?

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  • Philipp Stephan
  • Rüdiger Nitzsch

Abstract

This paper investigates the investment value of individual investors’ stock recommendations within online communities. We find that aggregated recommendations contain no explicit investment value and that following these recommendations may have a negative impact on investment performance. Our results suggest that recommendations are mostly based on simple heuristics and concentrate on a small number of stocks. When restricting the set of recommendations to those made by the most experienced or successful recommenders, results marginally improve but still preclude profitable investment strategies. Experienced and successful recommenders seem more likely to avoid the most expensive pitfalls rather than actually exhibit superior investment performance. Copyright Swiss Society for Financial Market Research 2013

Suggested Citation

  • Philipp Stephan & Rüdiger Nitzsch, 2013. "Do individual investors’ stock recommendations in online communities contain investment value?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(2), pages 149-186, June.
    • Handle: RePEc:kap:fmktpm:v:27:y:2013:i:2:p:149-186
    DOI: 10.1007/s11408-013-0208-7
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    More about this item

    Keywords

    Individual investors; Online communities; Stock recommendations; Investment value; Event study; Abnormal returns; D12; G11; G14;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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