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Opinion Leadership, Limited Attention and Overreaction
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TitleOpinion Leadership, Limited Attention and Overreaction  
AuthorLi Jinliang,He Chengying,Liao Dan and He Muyuan  
OrganizationTsinghua University; Zhejiang University of Finance & Economics;GUOSEN;; 
Key WordsBig data stock selection; Two-step communication; Limited attention; Over reaction  
AbstractThe effect of information transmission upon stock pricing is a subject with theoretical and practical significance. Since launched on-line March 26, 2015, “Baidu Stock Pick (BSP)” had announced stock picks by applying big data analysis on every trading day. In this paper, we utilize this data sample to study the influence of information transmission and investor sentiment on stock prices by considering a revised Hong & Stein (1999) model, the “two-step communication theory”, and the theory of behavioral finance. We report three main findings. (1) The stocks picked by BSP were subjects of strong short term momentum, documented with accumulated abnormal returns and trading volume before the announcement of the picks. (2) The BSP announcement accelerated the incorporation of the original news into pricing, accomplishing full pricing within the announcement day. (3) The BSP announcement induced excessive buying in the announcement day, followed by a price reverse next day. The shorter the interval between the second information transmission and the original news, the greater the degree of overreaction induced. In general, the BSP demonstrated opinion leadership, accelerated the pricing of news, but making no impact on long term pricing. Limited attention is an important underlying foundation for BSP’s opinion leadership. The existing literature focused on the role of information but ignored the process of information transmission on stock pricing. In addition to filling this void, the results in this paper provide evidence in support of enforcing surveillance on the Internet financial media. 
Serial NumberWP1305 
  • Institute of Economics, Chinese Academy of Social Sciences
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