Stock Analysts Vs. The Crowd: A Study on Mutual Prediction

The predictive power of stock analyst reports has been used to relate report contents to stock returns or describe herding behavior of analysts themselves. In this paper, the sentiment of analyst reports is related to that of a large social media data set via Granger Causality testing on the basis of wisdom of crowds theory based considerations, in order to investigate whether the two types of content are inherently related or not. Results show strong significance for a large number of the tested time series, indicating that the two types of content are indeed suitable for mutual prediction. In addition, we elaborate on the conditions under which cognitive diversity of the crowd matters. Furthermore, a second analysis stage provides evidence for which type of company and news environment a particular direction of granger cause arises between the two types of content.