TY - JOUR
T1 - The impact of internet stock message boards on cross-sectional returns of small-capitalization stocks
AU - Leung, Henry
AU - Ton, Thai
PY - 2015/6/1
Y1 - 2015/6/1
N2 - We examine the impact of more than 2.5 million HotCopper messages on the Australian stock market. HotCopper is the largest online stock message board in Australia and the sample of messages covers over 2000 companies listed on the Australian Securities Exchange (ASX) from January 2003 through December 2008. We exclude messages surrounding public price-sensitive announcements released centrally by the ASX in order to examine the private information content of internet board messages. We find that the number of board messages and message sentiment significantly and positively relate to the contemporaneous returns of underperforming (low ROE, EBIT margin, EPS) small capitalization stocks with high market growth potential (low book-to-market). Posting activity is positively associated with trading volume for small stocks and negatively associated with bid-ask spreads for small and large stocks in the short term. Bullish small stocks outperform bearish ones significantly in respective days and months, exhibiting no return reversals to pre-message board activity levels in subsequent time periods. Large stocks are not found to be affected by message board activity. We conclude that higher message board activity quickly reflects itself into the prices of small capitalization stocks in a highly regulated market like the ASX.
AB - We examine the impact of more than 2.5 million HotCopper messages on the Australian stock market. HotCopper is the largest online stock message board in Australia and the sample of messages covers over 2000 companies listed on the Australian Securities Exchange (ASX) from January 2003 through December 2008. We exclude messages surrounding public price-sensitive announcements released centrally by the ASX in order to examine the private information content of internet board messages. We find that the number of board messages and message sentiment significantly and positively relate to the contemporaneous returns of underperforming (low ROE, EBIT margin, EPS) small capitalization stocks with high market growth potential (low book-to-market). Posting activity is positively associated with trading volume for small stocks and negatively associated with bid-ask spreads for small and large stocks in the short term. Bullish small stocks outperform bearish ones significantly in respective days and months, exhibiting no return reversals to pre-message board activity levels in subsequent time periods. Large stocks are not found to be affected by message board activity. We conclude that higher message board activity quickly reflects itself into the prices of small capitalization stocks in a highly regulated market like the ASX.
KW - Internet message boards
KW - Small capitalization stocks
KW - Stock returns
UR - http://www.scopus.com/inward/record.url?scp=84924235693&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2015.01.009
DO - 10.1016/j.jbankfin.2015.01.009
M3 - Article
AN - SCOPUS:84924235693
SN - 0378-4266
VL - 55
SP - 37
EP - 55
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
ER -