Do Investors Perceive That Stock Positions Create a Conflict of Interest? Evidence from Stock Opinions Transmitted through Social Media

Abstract

Motivated by concerns that information intermediaries’ stock positions create a conflict of interest that might impair their objectivity, we examine investor perceptions of the stock positions of authors on the social media site SeekingAlpha (hereafter SA) and offer three primary findings. First, an author’s long (short) positions are positively (negatively) associated with short-window returns surrounding the article’s publication, suggesting that stock positions convey a signal about the author’s overall opinion of the firm that is incremental to the analysis in the article. Second, we find that the price response attributed to article tone is significantly stronger for articles authored by individuals with stock positions (i.e., skin in the game). Our results suggest that investors perceive authors with short positions to be more credible regardless of their tone, but that authors with long positions are only more credible when they write articles with negative tone. Finally, investors appear to find positive tone written by authors with short positions (i.e., short authors that write with a tone that is opposite to their underlying stock position) to be the most credible of all. Overall, our results suggest that an author’s stock positions do not impair that author’s credibility with investors, and in fact in many cases these positions actually enhance the author’s credibility.