3 - Investment advice on the Internet

Abstract

There has been a recent explosion of investor interest in buy–sell advice given on the Internet. At the same time, there is an emerging body of research in financial economics on print newsletters and the stock-price effects of buy–sell advice published in the print and electronic media. To test the power of Internet stock advice, this chapter considers ramifications tied to buy–sell announcements made on the Internet by the Motley Fool (TMF). TMF is the best known site on the Internet for investment advice and chat. It has also extended its reach beyond the Internet with regular columns of stock market advice in daily newspapers and a syndicated weekly radio program. The magnitude of stock-price effects tied to TMF buy–sell recommendations on the Internet, particularly TMF small-cap tech stock announcements; suggest that such announcements are at least as newsworthy as the types of second-hand buy–sell recommendations published in the traditional print and electronic media. These results suggest that Internet investors heed and quickly follow the buy–sell advice given on TMF.