News or noise? Internet postings and stock prices

The anecdotal evidence is growing that postings in Internet financial forums affect stock prices, either because the postings contain new information or because they represent successful attempts to manipulate stock prices. From an investment perspective, knowing whether this phenomenon is pervasive is important. We examined the relationship between Internet message board activity and abnormal stock returns and trading volume in the period from mid-April 1999 to mid-February 2000. Our study focused on the RagingBull.com discussion forum, an extremely popular site whose format permits the construction of an objective measure of investor opinions. For stocks in the Internet service sector, we found that on days with abnormally high message activity, changes in investor opinion correlated with abnormal industry-adjusted returns. These event days also coincided with abnormally high trading volume, which persisted for a second day. However, we found that message board activity did not predict industry-adjusted returns or abnormal trading volume, which is consistent with market efficiency.