Interesting research paper, part of the answer of how online talk could have an effect on Edig.

Online talk: does it matter?

Author(s): Sanjiv Sabherwal, Salil K. Sarkar, Ying Zhang

Journal: Managerial Finance

Year: 2008
Volume: 34
Issue: 6
Page: 423 - 436

Acknowledgements: The authors thank Bobby Alexander, Benoit Ballay, Yen-Ling Chang, Craig A. Depken, John G. Gallo, Larry J. Lockwood, Giao X. Nguyen, and Wikrom Prombutr for comments. They also thank RavenPack International, S.L. for providing news data and technical support. All remaining errors are the authors' own.

Abstract: Purpose – The purpose of this paper is to examine stocks that are most actively discussed by online posters and see if the messages posted about these stocks have information or if they are just noise.

Design/methodology/approach – This study uses messages posted on TheLion.com, which reports a real time list of the ten most actively discussed stocks. The stocks in this list at the daily market close during 2005-2006 are examined. An event study is performed to estimate the daily abnormal returns on these stocks. Contemporaneous and lead–lag regressions of abnormal returns against message posting activities are performed.

Findings – Online posters prefer thinly traded micro-cap stocks. On average, there is an abnormal return of 19.4 per cent on a stock the day it is one of the ten most talked about stocks. The number of messages posted about a stock on a given day is not only positively related with the stock's abnormal return on that day but it also positively predicts the next day's abnormal return.

Research limitations/implications – It may be interesting to examine if the investor sentiment expressed in online messages has predictive power for micro-cap stocks.

Practical implications – The results provide evidence to regulators that online talk affects stock prices. They show investors that there are inefficiencies in the stock market. They also suggest that corporate managers, especially of small firms, should monitor the stock message boards.

Originality/value – This study focuses on the micro-cap stocks favored by online posters and finds that online talk has the power to predict the next-day returns.

Keywords: Electronic commerce, Financial markets, Generation and dissemination of information, Internet, Stock prices, Stocks and shares

Article Type: Research paper

http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=F768C5AF1B9D4655974CAD027CBF40DF?contentType=Article&hdAction=lnkpdf&contentId=1727979

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