Are Social Media Analysts Disrupting the Information Content of Sell-Side Analysts’ Reports?

Abstract

We examine how research posted by “social media analysts” (SMAs), individuals posting equity research online via social media investment platforms, is related to research subsequently produced by professional sell-side equity analysts. Using data from Seeking Alpha, we find that the market reaction to sell-side analyst research is substantially reduced when preceded by the report of an SMA, and this is particularly true for sell-side analysts’ earnings forecasts. We further find that this effect is more pronounced when SMA reports contain more decision-useful language, are produced by SMAs with greater expertise, and relate to firms with greater retail investor ownership. We also provide evidence that the attenuated response to sell-side research is most likely explained by SMA research preempting information in sell-side research and that analysts respond to SMA preemption with bolder and more disaggregated forecasts. Collectively, our results suggest that equity research posted online by SMAs provides investors with information similar to but earlier than sell-side equity research and speak to the connected and evolving roles of information intermediaries in capital markets.