Stock Message Boards
This page intentionally left blank
Stock Message Boards A Quantitative Approach to Measuring Investor Sentiment Ying Zhang
STOCK MESSAGE BOARDS Copyright Ying Zhang, 2014. Softcover reprint of the hardcover 1st edition 2014 978-1-137-37417-2 All rights reserved. First published in 2014 by PALGRAVE MACMILLAN in the United States a division of St. Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-47685-5 DOI 10.1057/9781137372598 ISBN 978-1-137-37259-8 (ebook) Library of Congress Cataloging-in-Publication Data Zhang, Ying, 1979 Stock message boards : a quantitative approach to measuring investor sentiment / Ying Zhang. pages cm Includes bibliographical references and index. 1. Stocks Computer network resources. 2. Investments Computer network resources. 3. Internet. I. Title. HG4515.95.Z44 2014 332.60285'4693 dc23 2014024282 A catalogue record of the book is available from the British Library. Design by Newgen Knowledge Works (P) Ltd., Chennai, India. First edition: December 2014 10 9 8 7 6 5 4 3 2 1
To Biyun, Ike, and Ivy Zhang
This page intentionally left blank
Contents List of Figures List of Tables ix xi 1 Why Pay Attention to Stock Message Boards? 1 2 A Variety of Stock Message Boards 19 3 About Stock Message Board Posters 39 4 Why Do People Post Messages on Stock Message Boards? 53 5 Modeling the Value of a Stock Message Board 67 6 How to Measure Stock Message Boards Activities? 87 7 Patterns in Stock Message Board Posting Activities 113 8 Online Talk: Does It Matter at All? 137 9 Trading Strategies Based on Stock Message Board Information 157 10 Legal Issues Associated with Stock Message Board Posting 173 11 Whisperers Versus Analysts and Implications for Market Efficiency 189 12 Alternative Information on the Internet 207 13 Implications of Stock Message Boards 225 14 The Future of Stock Message Boards 237 15 Literature Review for Stock Message Board Studies 249 Notes 267 Bibliography 275 Index 285
This page intentionally left blank
Figures 2.1 Screen Capture of Post Message on HotCopper 31 2.2 Screen Capture of YingZhang s Member Profile on hotcopper.com.au 32 5.1 Linear Relationship between Messages m and Time t 73 5.2 Linear Relationship between Probability of Right Messages Pr and Rank r with a Positive a 75 5.3 Linear Relationship between Probability of Right Messages Pr and Rank r with a Negative a 76 5.4 Linear Relationship between Rank r and Time t 77 5.5 Nonlinear Relationship between Value of an Author v and Time t with a Positive a 78 5.6 Nonlinear Relationship between Value of an Author v and Time t with a Negative a 78 5.7 Linear Relationship between Number of Authors N and Time t 79 5.8 Nonlinear Relationship between Value of a Forum V and Time t with a Positive a 80 5.9 Nonlinear Relationship between Value of a Forum V and Time t with a Negative a 81 5.10 Lifecycle of a Message Board in the Long Run 84 5.11 Merger of Two Firms (Message Boards) 85 6.1 Screen Capture of My Microsoft Access Database 88 6.2 Screen Capture of My Text Files Folder 89 6.3 Flowchart for Using a Text Classifier 91 7.1 Message Length Measured in Number of Characters 114 7.2 Messages Posting by Hours (EST) 115 7.3 Messages Posting by Day 116 7.4 Messages Posting by Day within a Month 117 7.5 Messages Posting by Month 117 7.6 Messages Posting by Year 118 7.7 Distribution of Self-disclosed Sentiments 119 7.8 Number of Messages Posted by Authors 120 7.9 Authors Number of Postings when Starting a New Message 121
x Figures 7.10 Authors Credit Scores when Leaving a Message 122 7.11 Number of Watchers when Authors Leaving Messages 123 7.12 Distribution of Messages according to Stock Prices 125 7.13 Raw Return of a Stock Mentioned in a Message 126 7.14 Number of Outstanding Shares 127 7.15 Stock s Market Capitalization 128 7.16 Daily Trading Volume when the Stock was Mentioned 129 7.17 Average Numbers of Messages and Number of Posters from t 5 to t + 5 132 7.18 Sentiment and Disagreement Indexes from t 5 to t + 5 132 7.19 Event Study on Abnormal Return from t 30 to t + 30 133 7.20 Event Study on Abnormal Volume from t 30 to t + 30 134 7.21 Abnormal Return from t 5 to t + 5 135 7.22 Abnormal Volume from t 5 to t + 5 135 15.1 Number of Papers per Year 250
Tables 2.1 An Example of Activetrader Chat Room 23 2.2 User Yingzhang s Profile on Activetrader 24 2.3 An Example of the Short Term Trading Board on HotCopper 30 2.4 Complete Content of Message Number 43464 on HotCopper 30 2.5 An Example of the AAPL Message Board on Siliconinvestor 34 2.6 Message Number 168596 on the AAPL Message Board on Siliconinvestor 34 2.7 User YingZhang s Profile on Siliconinvestor 37 3.1 Demographics of Posters based on Quantcast Analysis 47 6.1 An Example of Confusion Matrix 106