Skin in the Game : Personal Stock Holdings and Investors’ Response to Stock Analysis on Social Media

Motivated by concerns that financial positions present a conflict of interest that impairs an analyst's objectivity, we examine investor perceptions of the financial positions of non-professional analysts (hereafter NPAs) providing stock analysis on the social media outlet SeekingAlpha (hereafter SA) and offer two primary findings. First, NPA positions contribute directly to short-window returns surrounding the article's publication, holding constant the information in the article (i.e., tone, length, rigor, numerical content, etc.) as well as contemporaneously issued news (i.e., from professional analysts, managers, and the business press). Economically, disclosure of a long position by an NPA corresponds to a positive 2-day return of 0.4 percent, while disclosure of a short position corresponds to a -1.2 percent return over the same period. These findings suggest that an NPAs stock positions convey information to investors. Second, contrary to concerns that stock positions are associated with biased analysis, we find no evidence that NPA positions reduce investor responses to the tone of the article. In fact, our evidence suggests that holding a position magnifies investor responses to both positive and negative tone, and these effects seem to be primarily driven by tone that is contrary to the NPA's stock position. Overall, our findings suggest that, contrary to regulators' concerns, stock positions of non-professional analysts do not decrease the credibility and informativeness of their analyses