'Israeli site Seeking Alpha more influential than ‘WSJ’'

Purdue shows Seeking Alpha has larger, longer-lasting impact on stock returns than views in the 'Wall Street Journal.'

By NADAV SHEMER
April 21, 2011 03:23
2 minute read.
Seeking Alpha

Seeking Alpha logo 311. (photo credit: Courtesy)

 
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Sentiment revealed through Israeli social media website Seeking Alpha has a larger and longer-lasting impact on stock returns than views expressed in the Wall Street Journal, a new study by Purdue University researchers has found.

The study, which was based on textual analysis of articles published in the two media outlets from 2006 to 2010 and which compared their respective impacts on the returns of over 2,800 US stocks, found that social media sentiment extracted from Seeking Alpha articles had a stronger association with contemporaneous and future stock returns than did traditional media sentiment in the Wall Street Journal, and that sentiment embodied in Seeking Alpha articles was also more successful at predicting future earnings surprises.

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Doctoral student Hailiang Chen, together with the three Purdue professors with whom he conducted the study, also found that a trading strategy that opts for long stocks with the most positive sentiment and short stocks with the most negative sentiment on Seeking Alpha would have generated returns of 0.40 percent a day or 8.31% a month.

In contrast, the corresponding strategy utilizing the Wall Street Journal would only have yielded a return of 0.29% a day or 5.96% a month, they found.

Seeking Alpha editor-in-chief Eli Hoffmann said that the Purdue researchers’ findings did not surprise him, as it would be expected that social media website would perform better in any study that focuses on investment decisions.

“[Whereas] the Wall Street Journal is a media outlet focused on finance, Seeking Alpha is a very targeted and specific website which is principally and almost exclusively about the investment decision,” he said.

“We have a much more focused mandate than the Wall Street Journal. Our audience is therefore much more focused, and it’s not at all surprising that any analysis, textual or otherwise, done on the content on Seeking Alpha, and the audience response to that content would likely perform better.”



Established in 2004 by English oleh David Jackson as a means of aggregating online content about stocks by fund managers, analysts, traders and amateur investors, the Herzliya Pituah-based startup now has around 4,000 contributors and is ranked in the top 350 websites in the United States, with around 4 million visitors a month.

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