How Have COVID-19 and Crowdsourcing Affected the Financial Industry?

February 11, 2021

Key Takeaways

If the article is positive, traders tend to buy. If the article is negative, they tend to sell.

The pandemic is changing the corporate landscape as people learn to work remotely to avoid infection. Dr. Russell Jame, the Garvice D. Kincaid associate professor of finance, is beginning to research the ramifications of this changing work environment in the financial industry.

In an on-going study, the Gatton researcher is using cell phone geo-data to analyze the effectiveness of brokerage analysts working from home against those who are coming into the office. “We can measure the fraction of analysts employed by a broker firm that are working from home and explore whether this measure correlates with changes in the accuracy and informativeness of earnings forecasts  relative to the pre-period when everyone was working in person,” he said.  

This study continues Jame’s exploration of the changing face of the financial industry, including the role of technology. The UK faculty member also is examining whether crowdsourcing websites such as Seeking Alpha make financial markets more transparent, accessible and lucrative to small retail investors. A paper based on this research has been presented extensively at a number of top conferences and recently received a revise and resubmit invitation from the Journal of Financial Economics.

Seeking Alpha, which at 20 million monthly users has more internet traffic than The Wall Street Journal and CNBC, publishes insight by a contributor base of over 17,000 investors and industry experts rather than sell-side analysts. In this study, Jame’s research team identified retail trades immediately as they happen and then compared this data with the time when the corresponding Seeking Alpha article was posted.

Jame found that retail trading spikes when these articles are released and traders’ decisions are more informed. “If the article is positive, they tend to buy. If the article is negative, they tend to sell,” Jame said. “When you look at the stocks they’re buying, they tend to do better than the general buying public does in the past. It’s helping retail investors make more informative trading decisions.”

Authors:

Russell Jame, Assistant Professor of Finance and Garvice D. Kincaid Faculty Fellow, Gatton College of Business and Economics at the University of Kentucky 

Publication:

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