The Impact Of Blog Recommendations On Security Prices And Trading Volumes

Previous research and recent statements by the Securities and Exchange Commission indicate that e-mail spam and message board posts are often used to manipulate markets in a variation of the classical "Pump-and-dump" scheme, leading to temporary market reactions followed by price reversals. In contrast, the author hypothesizes that financial blogs spread genuine information leading to permanent market adjustments. The author investigates stock recommendations on blogs and finds that bloggers tend to write about liquid securities issued by large firms; the author also finds that bloggers offer short advice consistent with momentum strategies but long advice consistent with contrarian strategies.