The Value of Amateur Analysts' Recommendations Extracted from Online Investment Communities

Understanding the value of information content of online investment communities is a fundamental issue for investors to leverage the content to make financial decisions. This study tries to investigate the relationship between economic variables and the content of amateur analysts’ opinions on online investment communities. We consider two specific research questions: (1) Do recommendations posted by amateur analysts on online investment communities help investors predict stock returns? (2) Is disagreement among the recommendations positively associated with trading volume? Our sample includes 95,784 pieces of financial analysis submitted by amateur analysts to Seeking Alpha which is an open online investment community for investment research. The results show that bearish recommendations from amateur analysts on Seeking Alpha predict stock returns, and the disagreement among the recommendations is positively related to trading volume. Overall, our findings suggest that amateur analysts’ recommendations are a valuable source of information in stock markets.