Financial Message Boards: Birds of the Same Feather Flock Together

Oct 28, 2008

(PhysOrg.com) -- Contrary to the popular belief that online investment communities represent a melting-pot of ideas, where people come together to trade stock tips, share opinions and attempt to influence others, individuals using financial message boards seek out and interact with those who share the same opinions, new research at The University of Texas at Austin shows.

Michelle Chen, Bin Gu and Prabhudev Konana of the McCombs School of Business studied 72,019 individual interactions in 29 stock message boards on Yahoo! Finance. They found evidence consistent with a well-known psychological phenomenon called confirmation bias, where people look for information that agrees with their prior beliefs and participate in discussions with similar sentiments. As a result, they often unintentionally ignore or discount contradictory evidence.

"The staggering number of participants suggests that virtual communities could serve as a melting pot where investors exchange information and opinions," Konana said. "Unfortunately, the evidence shows that this is not happening. Fragmentation within a message board is much like what is observed in non-virtual social interactions where individuals of similar economic and social backgrounds form their own networks."

This behavior was shown to be further amplified when individuals face information overload, encounter limited information resources, experience high market uncertainty or hold a minority opinion in the community.

"As millions of users flock to virtual investment communities everyday, their influence on the stock market will become more prominent," Gu said. "Confirmation bias of this nature ultimately could lead to a distortion of the financial markets."

The paper can be found online.

Provided by University of Texas at Austin

Explore further: Can science eliminate extreme poverty?

add to favorites email to friend print save as pdf

Related Stories

How 'social contagion' begins and escalates

Apr 11, 2014

Understanding the roots of a global, contagious spread of online information may help better predict political revolutions, consumer behavior, box office revenues, public policy debates, and even public health ...

What you need to know about the Heartbleed bug

Apr 09, 2014

Millions of passwords, credit card numbers and other personal information may be at risk as a result of a major breakdown in Internet security revealed earlier this week.

Recommended for you

Egypt archaeologists find ancient writer's tomb

Apr 19, 2014

Egypt's minister of antiquities says a team of Spanish archaeologists has discovered two tombs in the southern part of the country, one of them belonging to a writer and containing a trove of artifacts including reed pens ...

Study finds law dramatically curbing need for speed

Apr 18, 2014

Almost seven years have passed since Ontario's street-racing legislation hit the books and, according to one Western researcher, it has succeeded in putting the brakes on the number of convictions and, more importantly, injuries ...

User comments : 0

More news stories

Clippers and coiners in 16th-century England

In 2017 a new £1 coin will appear in our pockets with a design extremely difficult to forge. In the mid-16th century, Elizabeth I's government came up with a series of measures to deter "divers evil persons" ...

Making graphene in your kitchen

Graphene has been touted as a wonder material—the world's thinnest substance, but super-strong. Now scientists say it is so easy to make you could produce some in your kitchen.