Rumours Built on Quicksand: Evidence on the Nature and Impact of Message Board Postings in Modern Equity Markets

It is argued that internet-based short-sellers take advantage of asymmetric information, publishing research online which often values shares in a target company at a large discount to their current price. The increasing popularity of online dissemination of information, coupled with evidence that individuals are prone to behave in a herd-like fashion suggests the potential for significant volatility in the share price of a company. In this paper, a dataset of 12,616 financial message board postings is employed to examine patterns in online activity following the publication of a research note targeting a specific firm by an internet-based short seller. Identifiable trends in investor behaviour, indicative of community contagion, are shown with group sentiment shifting over time. The findings have implications for regulators’ attempts to adapt to an online environment in which information - and misinformation - can be rapidly incorporated into share prices.