Crowdsourcing Content

A recent academic study, “Wisdom of Crowds: The Value of Stock Opinions Transmitted Through Social Media”, undertaken by the City University Hong Kong, Purdue University and the Georgia Institute of Technology looked at how social media can have an effect on stock options, most notably looking at the crowdsourcing content blog Seeking Alpha.

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The study indicated that the tone of stock market opinion blogs on the site can have a direct effect on the performance of the stock. Looking at the ‘wisdom of the crowds’ option that the site employs, the study tracked the performance of stocks with a high percentage of negative words in the articles and comments.

The report went into great detail on the change in consumer behaviour from traditional sources to peer-based advice and how this has started to affect the way investors view stock trading. It says that regulators have found social media to be landscape changing and its relevance to financial markets is growing.

The increasingly popular Seeking Alpha was launched in 2004 by David Jackson and has since grown to publish nearly half a million articles, with around 300 added per day. The site has garnered much press for its way of collating articles, allowing authors to remain anonymous and post under pseudonyms to combat any workplace regulations amongst other things.

Not without controversy however, a notable argument took place between an anonymous contributor and hedge fund Greenlight Capital over the revealing of their stake in a technology company. This matter was settled privately between the company and the contributor but highlights the potential hazard anonymous authors present.

Controversies aside, the study has proven the part that non-traditional sources now have to play in investments, and highlighted the power and wisdom of the crowd.