Information Asymmetry and Information Technology: Evidence from Wikipedia and Analysts' Forecasts

Abstract

During the last decade the internet has become an increasingly important source for gathering company related information. We therefore hypothesize that company related internet activity can be used to proxy for information asymmetry in financial markets. To test this idea, we conduct an empirical analysis that examines the relation between analysts' forecast data and Wikipedia entries data for Dow Jones Industrial firms. We find that those firms whose Wikipedia entry is edited more frequently have lower analysts' forecast errors, smaller analysts' forecast dispersions, and significant changes in bid-ask spreads on analysts' recommendation dates. These results indicate that information dissemination over the internet is related to information asymmetry in financial markets and that the use of the internet may have contributed to the reduction in analysts' forecast errors.