News or noise? Internet postings and stock prices

The anecdotal evidence is growing that postings in Internet financial forum s affect stock prices, either because the postings contain new information or because they represent successful attempts to manipulate stock prices. F rom an investment perspective, knowing whether this phenomenon is pervasive is important. We examined the relationship between Internet message board activity and abnormal stock returns and trading volume in the period from m id-April 1999 to mid-February 2000. Our study focused on the RagingBull.com discussion forum, an extremely popular site whose format permits the const ruction of an objective measure of investor opinions. For stocks in the Int ernet service sector, we found that on days with abnormally high message ac tivity, changes in investor opinion correlated with abnormal industry-adjus ted returns. These event days also coincided with abnormally high trading v olume, which persisted for a second day. However, we found that message boa rd activity did not predict industry-adjusted returns or abnormal trading v olume, which is consistent with market efficiency.