By Robbie Moon (contact author), John Campbell and Matt DeAngelis
We examine whether markets react to Seeking Alpha articles at the time they are published, and if that reaction differs when the author of the article holds a position in the firm about which they are writing. On the one hand, the Securities and Exchange Commission (SEC) has expressed concerns that if authors have a financial interest in the firms they cover, their credibility could be impaired. If so, investors may react more weakly to Seeking Alpha articles when the author discloses a financial position. On the other hand, if an author takes a financial position in the firm it could be due to their willingness to "put their money where their mouth is." If so, investors may find these authors to be more credible and thus react more strongly.
We extract the information conveyed in 114,120 Seeking Alpha articles that cover 4,016 unique firms released on 80,589 unique firm-days from 2006 to 2015. For each article, we identify the ticker symbol associated with the firm about which the article is written ("primary ticker"), the disclosure notifying whether the author has a position in the stock ("disclaimer"), and the tone of both the article and associated user comments using a financial sentiment dictionary. We code the author's position as long (or short) if the primary stock ticker appears in the author's listed long (or short) holdings and no position otherwise. We then match each article to stock return data using the primary stock ticker and compute abnormal stock returns for the (0, +1) days surrounding the article release as well as for the subsequent drift (i.e., 60 trading days) after the article release.
Using multiple regression analysis, we find three main results. First, an author's long (or short) positions are positively (or negatively) associated with short-window returns surrounding the article's publication. This finding suggests that financial positions convey information about the author's overall opinion of the firm and that investors perceive these SA authors to be credible.
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 expressing 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 financial position) to be the most credible of all. Overall, our results suggest that investors react to the publication of Seeking Alpha articles and that the disclosure of an author's financial positions enhances that market reaction.
Two-day returns attributable to position and tone are summarized below:
If Author has Long Position:
If Author has Short Position:
Reaction to position (relative to no position)
Reaction to a two standard deviation increase in Positive Tone in article
Reaction to a two standard deviation increase in Negative Tone in article
The full length research report can be found at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2837321.
Robbie Moon is an Assistant Professor at the J. Mack Robinson College of Business at Georgia State University. His research focuses on firms' voluntary and mandatory disclosures and the intersection of audit and financial accounting research. He completed his PhD at Florida State University in 2014. Previously, he worked as a consultant at a Big 4 accounting firm in Atlanta, GA, and was a collegiate swimmer at Louisiana State University.
John Campbell is an Associate Professor and EY Faculty Fellow at the J.M. Tull School of Accounting at the University of Georgia. His research focuses on how complex financial and tax accounting information is reflected in asset prices. He completed his PhD at the University of Arizona in 2010. Previously, he worked as the financial reporting manager of an SEC registrant, a senior auditor at a Big 4 accounting firm, and an investment banking analyst.
Matt DeAngelis is an Assistant Professor at the J. Mack Robinson College of Business at Georgia State University. His research focuses on firms' voluntary and mandatory disclosures and analyzing the effects of disclosure tone on capital markets. He completed his PhD at Michigan State University in 2014. Previously, he worked as an M&A analyst for a Big 4 accounting firm in New York City.