Journal of Communication ISSN 0021-9916

ORIGINAL ARTICLE

The Aggregate Effects of Decentralized Knowledge Production: Financial Bloggers and Information Asymmetries in the Stock Market
Gregory D. Saxton & Ashley E. Anker
Department of Communication, University at Buffalo, Buffalo, NY 14260-1020, USA

New media have markedly enhanced individuals capacity to produce and disseminate original knowledge; however, the literature has not extensively examined the broad effects of such decentralized production processes. This study thus focuses on a unique contextthe stock marketin which it is possible to test the aggregate impact of blog-based information production. Using data on 150 top nancial bloggers and stock returns from the S&P 500, this study supports the hypothesis that nancial blogging activity diminishes harmful information asymmetries between key market investors. This study thus adds to the media effects literature, highlights the societal relevance of bloggers, and shows how economic concepts and nancial market settings can be employed for powerfully testing communication theories. doi:10.1111/jcom.12060

Communication scholars have produced a large body of work on the acquisition of knowledge (see e.g., Hwang & Jeong, 2009). Far less attention has been directed toward exploring knowledge production (see Wei, 2009, for an exception), despite the fact that new media have unleashed a dramatic increase in individuals capacity to produce and disseminate knowledge. There is thus a pressing need to explore the nature, and particularly the effects, of such decentralized information production at all levels of society. This study addresses this critical void in the literature by addressing the following question: Above and beyond the effects of traditional media, do blogs inuence aggregate levels of knowledge? To answer this question, this study focuses on the stock market, a unique setting that renders it possible to test the cumulative effects of information produced by
Corresponding author: Gregory Saxton; e-mail: gdsaxton@buffalo.edu The initial idea for this article was presented as a poster at the annual meeting of the American Accounting Association, August 36, 2008, Anaheim, CA. A revised version was presented at the 2012 annual meeting of the National Communication Association in Orlando, FL.

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a given medium. The authors posit that, in the aggregate, nancial blogs produce valuable information that serves to mitigate the harmful information asymmetries that plague the stock market and impair market fairness. The specic focus is on the information asymmetry that typically exists between rm insiders (executives and members of the board) and average investors, or outsiders. The core hypothesis is that knowledge produced by nancial bloggers can decrease the information asymmetry between rm insiders and outsiders, and thus limit insiders ability to protably trade on privately held information. This hypothesis is tested using blogging data on 150 top nancial blogs and corporate insider trades on the rms of the S&P 500 index. This study makes several contributions to the literature. It is the rst in any eld to examine the impact of new media on information asymmetry, and is one of only a handful of studies on the capital markets (the bond and stock markets) in the eld of communication (Davis, 2005; Scheufele, Haas, & Brosius, 2011; Zwick, 2006). Given how the markets uctuate according to investors reactions to newly acquired rm-specic information, the capital markets represent a uniquely promising venue for investigating macrolevel outcomes of information production and dissemination. In fact, such markets are an ideal setting in which to get a reliable, numerical indicator (e.g., change in trading price and volume) of the cumulative effects of information generated through a given communication channel. In addition, the current article meets Wildmans (2008) call for greater integration of the communication and economics elds, rening and introducing several nancial economics-related concepts to a communication audience. The study also offers a unique test of the societal-level effects of blog-based information production that extends work on the leveling effects of new media (e.g., Maratea, 2008; Woodly, 2008).
Information asymmetry, insider trading prots, and media messages

Information asymmetries occur when parties to an exchange possess unique or varied information. Such asymmetries are prominent in a variety of communication contexts, such as between sellers and buyers in bargaining and negotiation scenarios, healthcare providers and patients in the context of medical decision-making, and criminal suspects and law enforcement agents engaged in deception detection (see Wildman, 2008; for more examples, see Levitt & Dubner, 2005). In each of these scenarios, one party is privy to uniquely held information. As the alternate party is disadvantaged by this knowledge disparity, information asymmetries are generally seen as detrimental (see Wildman, 2008). Real-world examples of information asymmetries are common, as with an employee knowing more about her actual workload than her manager, a doctor knowing more about the cost and trade-offs of a treatment option than her patient, a realtor knowing more about prices than a home seller, or a corporate insider knowing more about her companys prospects for future protability than an average investor. This study proposes that aggregate content produced by nancial bloggers can decrease the information asymmetries that obtain between corporate insidersthe
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rms executives, board members, and large shareholdersand average investors. When corporate insiders have access to unique information about their company that is unavailable to the investing public, they often prot as they use this information to buy or sell their companys stock (e.g., Aboody & Lev, 2000; Joseph & Wintoki, 2013; Skaife, Veenman, & Wangerin, 2012). A sizeable literature thus nds a strong relationship between information asymmetry and insider trading prots (e.g., Aboody & Lev, 2000; Frankel & Li, 2004; for a review, see Lakonishok & Lee, 2001). Fortunately, research also suggests ways of decreasing insiders informational advantage. Working in the nancial economics paradigm, Frankel and Li (2004) offer the most comprehensive study of the role of traditional media in reducing information asymmetries; using insider trading prots as the proxy for information asymmetry, the authors found a strong relationship between insider trading prots and traditional media coverageincluding newspapers, magazines, wire services, and nancial analyst reports. Research thus directly supports the idea that nancial analysts (Frankel & Li, 2004; Joseph & Wintoki, 2013; Skaife et al., 2012) and print media (Frankel & Li, 2004) constitute key elements of the information environment , or the amount and quality of information available about a given organization, along with the actors involved in the collection, production, processing, and dissemination of that information. Insofar as a source provides additional, relevant information to stock market actors about a given rm, that source becomes a pertinent component of the rms information environment, and can hence play a role in reducing information asymmetries (Frankel & Li, 2004; Joseph & Wintoki, 2013; Skaife et al., 2012). Scheufele et al. (2011), in the only communication study to date to consider market reactions to media messages, also provide indirect, correlational evidence of a relationship between the traditional information environment and stock market uctuations. Though informative, prior research in both nancial economics and communication has failed to consider the role of new media as additional communication channels that might serve to further reduce information asymmetry and, in turn, insider prots.
New media as leveling forces in the information environment

Building on a substantial body of political communication research (e.g., Gil De niga, Puig, & Rojas, 2009; Woodly, 2008), this study argues that new media are a Zu novel, important, and leveling element of rms information environments. New mediaespecially blogsmay have a democratizing impact on the traditional power structures governing information production. Unlike traditional media outlets, blog authors may remain independent from media conglomerates (Woodly, 2008) or produce information demonstrating a greater variety of topics and sources (see Carpenter, 2010, for an example in online citizen journalism). Woodly (2008) describes blogs as creating a more dialogic public sphere, in which bottom-up communication processes supplement the traditional top-down ow of information. Indeed, blogs have been found to frame political issues for opinion leaders (Farrell & Drezner, 2008) and to attract public attention and news coverage to issues
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initially overlooked by mainstream media (Maratea, 2008). By increasing individuals power over knowledge production and dissemination (Wei, 2009), blogs disrupt traditional informational power structures and democratize information production and acquisition; it is thus that Levitt and Dubner (2005, p. 68) boldly declare that, Information asymmetries everywhere have been mortally wounded by the Internet. This study posits nancial bloggers provide a similar effect in decreasing information asymmetries in the stock market.
Financial blogs, decrease in information asymmetry, and decline in insider trading prots

Financial blogs contain information, news, commentaries, opinions, company analyses, and stock recommendations from a variety of contributors including investors, executives, analysts, journalists, and academics. Most are run by single individuals, though top blogs have dozens or even hundreds of paid and/or volunteer contributors; the top investment blog, Seeking Alpha, has more than 4,000 professional and nonprofessional author-analysts. Collectively, these blogs have a large and dedicated audience. At the time of the study, the number of monthly unique visitors for the top 150 nancial blogs ranged from 9,000 for GraceCheng.com, to 85,000 for The Kirk Report , to 2.6 million for SeekingAlpha. Beyond the general features of blogs noted above, nancial blogs have a number of characteristics that may inuence their ability to reduce information asymmetry and, in turn, insider trading prots. To start, similar to observations in the political communication literature (e.g., Wallsten, 2008), the nancial blogosphere is dominated by authors this study refers to as analysts. Though nancial bloggers occasionally diffuse inuential leaks, rumors, and whispers (e.g., Harjoto, Zaima, & Zhang, 2009), analyst bloggers are chiey involved in producing original information of value to market participants. Such blogs provide recommendations and forecasts, as would regular, full-time analysts employed at nancial institutions (Chen, De, Hu, & Hwang, 2011; Fotak, 2007). The blogosphere has effectively leveled the playing eld between professional analysts employed by nancial rms and blog-based nonprofessional analysts. Financial blogs have become marketing tools for new types of analysts, consultants, and authors to boost their prestige, build their brand, and attract customers. High-quality bloggers can earn a living (through clients and ad revenue) indirectly tied to the frequency and quality of their nancial analyses and stock recommendations. Saxton (2012) refers to these prot-motivated bloggers as freelance analysts, and to bloggers without a prot motive as amateur analysts. Because both types seek to build an audience, they have a strong incentive to spread accurate, reliable, and useful information; as a result, nancial blogs have come to be seen as credible sources of investment information (Chen et al., 2011; Fotak, 2007). Collectively, nancial blogs are lling a demand for information in areas not met by the traditional information environment, in which cuts are being made in news coverage of small and midsized rms and nancial rms are hiring fewer analysts to cover publicly traded companies (Blankespoor, Miller, & White, 2013). Financial
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bloggers thus appear to be a key, growing part of rms information environments. They collectively offer information and analyses that can be viewed as alternate forms of information that supplement, and in some cases supplant, traditional sources of information. They effectively ll in critical information gaps lacunae in coverage by the traditional information environment. Moreover, in providing timely information with up-to-the-minute reporting, nancial blogs can spark a rapid diffusion of content. As general investors nd themselves with increased access to a diversity of timely new reports, insiders may be left with little time or opportunity to act upon uniquely held information. In effect, the more cumulative knowledge produced in the blogosphere about a particular rm, the lower the average level of information asymmetry that should obtain between corporate insiders and general investors. The lower the level of information asymmetry, in turn, the less able insiders will be to protably trade on private information. The central hypothesis of this study is hence that insider trading prots will be negatively associated with blog coverage. This study has broader signicance to communication scholars for understanding the effects of decentralized computer-mediated communication processes. By considering new sources of information (blogs) that disrupt traditional information production processes, this study expands upon prior work examining the societal effects of blogs (e.g., Wei, 2009). Contrary to the reliance on the indirect measurement of political knowledge in prior research (e.g., Wei, 2009), the current article studies blogs in a venue where a quantitative and precise indicator of blog-based information production can be constructed. By connecting prior research to the concepts of information environment and information asymmetry in the capital markets context, this study allows for an innovative and robust test of the aggregate effects of a decentralized new media channel.
Method Sample

The sample comprises the 500 rms of the S&P 500 index over a 14-week period in 2008. Examining such highly visible rms militates against nding signicant results; given the considerable attention paid to these rms by the traditional media (Lakonishok & Lee, 2001), it is less likely new media-generated sources can have a notable effect. This study hence represents an intentionally high hurdle for testing the effects of nancial blogs. Each of the 500 rms is analyzed in discrete week-long periods, a time period long enough to capture a reasonable number of insider trades. Given that most blog posts are read within a narrow window around the posting date, this time frame also captures the bulk of the inuence of each blog post written about a rm. Over the 14 weeks of the study, there are thus 7,000 potential rm/week observations (500 rms 14 weeks). However, given the specic interest here in the information
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asymmetry between rm insiders and outsiders, the analysis is restricted to cases where actual corporate insider trading takes place. The Securities and Exchange Commission (SEC) requires all corporate insidersthe rms ofcers, board members, and those holding 10% or more of its sharesto le SEC Form 4, Statement of Changes in Benecial Ownership, within 2 business days of making a personal trade in their companys stock (sec.gov/answers/form345.htm). To determine weeks in which a corporate insider trade occurred, all SEC Form 4 lings were analyzed for the 500 rms from January 23 to May 1, 2008. These lings are publicly available on the SECs Edgar database (www.sec.gov/edgar.shtml). In any given week, if management (insiders) in a rm conducted a trade (i.e., a common stock buy or sell transaction), the rm was included in the analysis that week; if not, it was excluded. The nal analysis thus comprises the 681 rm/week observations (representing 277 of the S&P 500 rms) in which one or more insider trades occurred. As detailed in the following sections, data for the study were collected from a variety of sources: Raw blogging and news data from the Internet research rm FirstRain; stock return data from Yahoo! Finance; data on insider trading activity from the SECs Edgar database; and data for nancial and stock-related control variables from three different databases at the Wharton Research Data Services (WRDS) online repository (wrds-web.wharton.upenn.edu).
Dependent variables: 90-Day insider trade buy-and-hold return

Given the difculty in directly observing information asymmetry, nancial economists typically search for a proxy measurean indicator or representation of its presence. Consistent with a measure commonly employed by prior literature (e.g., Frankel & Li, 2004; Joseph & Wintoki, 2013; Skaife et al., 2012), the dependent variable and proxy for information asymmetry in this study is insider trading prots; specically, the 90-day buy-and-hold return after the date of the rst insider transaction in the event week. The variable Return measures the percentage increase or decrease in the value of the stock purchased by the insider over a 90-day period. In line with other research (e.g., Frankel & Li, 2004), the 90-day period was chosen as a time frame long enough that gains from the trade could be expected to become visible. In instances where an insider has information that price is likely to increase, and the insider purchases the rms stock, this 90-day return is likely to be considerable; moreover, such trades should be especially protable where information asymmetry between insiders and outsiders is salient. In contrast, in cases of lower information asymmetry, rm outsiders will also have access to relevant rm information, thus decreasing the protability of trading on private information. As a result, a negative relationship between blogging activity and insider trading prots is expected. Using stock return data from Yahoo! Finance, two versions of Return (scaled to indicate percentage gain) are operationalized. The rst is the unadjusted buy-andhold return, based on the difference between the stock price on the date of the rst insider transaction in the event week and 90 days in the future. The second is the
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market-adjusted 90-day return. As Scheufele et al. (2011) argue, because stock prices rise and fall partially in conjunction with the broader market, returns should also be compared against a market referent as a robustness check. As is common in nancial studies (see Binder, 1998), the market-adjusted version of Return is based on the difference between the 90-day buy-and-hold return of the rms stock and that of the aggregate S&P 500 index.
Independent variables Number of rm-specic blog posts

The key independent variable is the number of rm-specic blog posts/week. As the majority of bloggers in any arena are of low quality or readership, the study focuses on top bloggers, who attract the bulk of audience attention (see Farrell & Drezner, 2008, for an example in political communication). Specically, this study examines the 150 most inuential nancial blogs as calculated by FirstRain, a web intelligence company that provides customizable search-driven research for investment professionals and corporate executives. The blog list was determined by computer algorithm based on the blogs readership, inuence, and authority (an appendix listing the blogs is available in the supplementary Web appendix). The authors cross-checked the list using readership data on Alexa.com and compete.com to ensure that no high-visibility nancial blogs were overlooked. This check showed the lowest-ranked blog on the list had roughly 9,000 monthly visitors. This represents a reasonable cut-off point; blogs with fewer readers are less apt to produce novel information (see Farrell & Drezner, 2008), and if such content were novel, low readership would result in it having little impact on the stock market. The top 150 blogs can thus be taken as a reasonable proxy for the entire inuential portion of the nancial blogosphere. Daily blogging data were gathered by FirstRain via a customized web crawler that downloaded and automatically coded posts on the 150 blogs (see Sonnier, McAlister, & Rutz, 2011, for a similar method). A random check of the blogging dataset against the actual blog sites showed that, in all cases, the dataset was accurately capturing all blog posts from these sites. The blogging dataset included a daily count of the number of posts in which each of the 500 rms was discussed, which the authors then aggregated to the weekly level. To verify the reliability of the data, 100 randomly chosen blog counts were cross-checked against the content of the original blog posts and found to be correct in all cases. Over the 14-week study period, information was recorded on 13,103 blog mentions of the S&P 500 companies. The average rm had 2.71 blog mentions per week (s.d. = 4.9), with a range of 0 to 81. The variable Blog Posts measures the log of the number of blog mentions for each rm in a given week.
Traditional information environment

This study also controls for the traditional information environmentrepresented, as in Frankel and Li (2004), by the number of rm-specic news articles by the
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traditional press and the number of professional nancial analysts covering the rm. FirstRain provided the authors with a dataset that counted 124,866 mentions of S&P 500 rms in articles written over the 14-week period in news wires (e.g., AP, Reuters) and major U.S. newspapers (e.g., New York Times, Chicago Tribune). These data were cross-checked in a similar fashion as the blogging data, and the variable News Articles was computed as the log of the number of news articles written about each rm each week. The second variable pertaining to the traditional information environment, Analyst Following , is the log of the number of sell-side nancial analysts following the rm in 2007. These data were collected for each rm from the Institutional Brokers Estimate System via the WRDS repository. Sell-side analysts are inuential in the nancial markets, as they are employed by large investment rms and publish stock recommendations and earnings forecasts that are publicly available on all the major nancial information sites (e.g., Yahoo! Finance, CNN Money). The number of nancial analysts is therefore regularly taken as a proxy for the richness of the traditional information environment (e.g., Frankel & Li, 2004; Joseph & Wintoki, 2013; Skaife et al., 2012), with a greater number of analysts suggestive of a richer information environment.
Financial and stock controls

To ensure that blog coverage and insider trading prots are not spuriously related, analyses must control for other variables that might affect their relationship. The current analyses include two such variablesthe variability of stock returns and the market-to-book ratiothat have been found to have strong traction in explaining variation in the protability of insider trades (Frankel & Li, 2004; Joseph & Wintoki, 2013; Skaife et al., 2012). Data for these variables were derived from Compustat and the Center for Research in Security Prices, both available through the WRDS repository. First, Market-to-Book measures the ratio of the market value of the companys stock at the end of 2007 to the companys book value (total net assets) at the end of scal year 2007 (source: Compustat ). Market-to-Book is a measure of the value of the companys stock that taps whether the stock is under- or overvalued; given that this affects other investors purchase decisions, it impacts the degree to which insiders are able translate inside information into future prots (Frankel & Li, 2004; Skaife et al., 2012). Second, the degree of variability of a rms stock is the core measure of its level of risk, which in nancial economics theory has a strong relationship to reward, or the return that can be expected (e.g., French, Schwert, & Stambaugh, 1987). Variability is calculated as the standard deviation of a rms daily stock returns in 2007 (source: Center for Research in Security Prices). Both variables have been found to be strongly associated with insider trading prots (e.g., Frankel & Li, 2004; Joseph & Wintoki, 2013; Skaife et al., 2012).
Results

Readers are directed to Table 1 for descriptive statistics and zero-order correlations. A variety of analyses and robustness checks were conducted on the study data, and
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Table 1 Descriptive Statistics and Zero-Order Correlations Correlations M 1. 90-Day return 0.02 0.02 2. Market-Adj. 90-day return 3. Blogs Posts 1.75 4. News Articles 3.19 5. Net Purchase 0.64 Ratio 6. Analyst 2.85 Following 7. Variability 0.02 8. Market-to-Book 3.67 Ratio SD 0.15 0.14 1 1 0.93 2 1 3 4 5 6 7 8

1.35 0.01 0.01 1.84 0.09 0.05 0.75 0.04 0.07 0.41 0.03 0.01

1 0.70 1 0.01 0.03

1 1

0.38 0.28 0.06

0.01 0.06 0.05 0.01 0.00 0.09 0.07 1 5.62 0.05 0.08 0.07 0.03 0.05 0.10 0.11 1

the general pattern of ndings remains the same across tests: Financial blogging is associated with a reduction in insider trading prots. Consequently, four ordinary least square (OLS) regressions deemed the most accessible and parsimonious of the tested models are presented in Table 2 (for additional analyses, see the supporting appendix available at www.gregorysaxton.net). The analyses presented here concentrate on that subset of observations where all insider trades during the week are buys, which represents the most intuitive and readily interpretable case. When insiders are buying their companys stock with greater frequency, it is highly likely they have information weighted toward its future protability (Aboody & Lev, 2000; Frankel & Li, 2004; Joseph & Wintoki, 2013). As a result, all other things being equal, in the aggregate, insider buying will be associated with future prots, while insider selling will be associated with future losses (see among others, Aboody & Lev, 2000; Lakonishok & Lee, 2001). The analyses can thus be interpreted as addressing the question of whether, in cases where insiders have been buying the companys stockindicating they think the price will go upcan blogged information decrease the information asymmetry between insiders and outsiders, thereby decreasing insiders gains on those trades? The base model in Table 2 (Model 1) shows the results pertaining to the unadjusted buy-and-hold return dependent variable. First, with respect to the control variables, the results demonstrate that higher Market-to-Book value is signicantly (and positively) associated with the protability of insider trades, but that Variability is not. More important are the information environment coefcients. The two traditional information environment variables (i.e., News Articles, Analyst Following )
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Table 2 OLS Regressions of Buy-and-Hold Return on Information Environment and Control Variables

G. D. Saxton & A. E. Anker

Independent Variable + . 2.74*** 0.15 2.72*** 0.15

Expected Sign

Model 1 90-Day Return (total posts)

Model 2 90-Day Return (unique posts)

Model 3 Mkt-Adj. Return (total posts)

Model 4 Mkt-Adj. Return (unique posts)

Information environment Blogs Posts

News Articles

Analyst Following

0.029** (2.09) 0.004 (0.32) 0.012 (0.22)

0.030** (2.10) 0.004 (0.32) 0.012 (0.22)

0.029* (1.97) 0.001 (0.05) 0.005 (0.09)

0.029* (1.96) 0.001 (0.05) 0.005 (0.09)

Financial and stock controls Variability

Market-to-Book Ratio

Constant

4.586 (1.42) 0.0001** (2.59) 0.151 (0.95)

4.595 (1.43) 0.0001** (2.59) 0.151 (0.95)

3.210 (0.88) 0.0001*** (3.41) 0.070 (0.44) 3.12*** 0.12

3.219 (0.88) 0.0001*** (3.41) 0.071 (0.44) 3.10*** 0.12

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F Adjusted R2

Note: Huber-White Corrected t Statistics in parentheses. *** , ** , and * denote two-tailed signicance at the 0.01, 0.05, and 0.1 levels, respectively. Unit of analysis is the rm/week. Results based on the following OLS regression model, employed for all observations (n = 111) with an insider trade in a given calendar week, where all the insider trades are buys: RETURN = + 1 Blog Posts + 2 News Articles + 3 Analyst Following + 4 Variability + 5 Market - to - Book + .

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were both not signicant. However, the logged total number of rm-specic blog posts (Blog Posts)the main coefcient of interestdemonstrated the expected negative association with returns. This suggests that, on average, the more information in the blogosphere targeting a particular rm, the lower the level of information asymmetry between rm insiders and general investors in the S&P 500 market. To give a sense of the practical signicance of the results, the authors performed a series of postregression analyses, using the R package Zelig (Imai, King, & Lau, 2007), to calculate expected effects for the main quantities of interest. Using the regression coefcients from Model 1, the expected level of insider trading prots was calculated for various levels of blogging activity, with all other regression variables held constant at their mean values. These analyses show that, ceteris paribus, in conditions of insider buying and zero blogging activity, insiders can expect, on average, a 4.4% return over 90 days, while at mean levels of blogging activity, the expected return is only 0.9%. In short, higher levels of blogging appear to have a real and notable relationship with decreases in insider prots.
Sensitivity analyses

A variety of additional analyses were conducted to test the sensitivity of the base model to alternative specications. As shown in Model 3, results were re-run using the market-adjusted version of the buy-and-hold return dependent variable. The results were identical to those seen in Model 1 in terms of sign and signicance for all independent variables. Models 2 and 4 replicate Models 1 and 3, respectively, using a different count of blog posts. Models 1 and 3 contained a total count of weekly posts about each rm by the top 150 bloggers. In some cases, a post will appear on multiple blogs, such as when a post from one blog is syndicated on another. In Models 1 and 3, this would count as two total posts. This reects a type of echo effect that occurs when messages are disseminated on multiple channelsthe so-called echo chamber (e.g., Woodly, 2008). In 12% of the observations, there were one or more echo posts. Models 2 and 4 remove this echo effect by counting the unique bodies of text that are posted about each rm; in these two models, the count in the above example would be 1 post, rather than 2. Results of Models 2 and 4 are the same in terms of sign and signicance as in Models 1 and 3: Whether the echo effect is accounted for or eliminated, the number of blog posts is associated with reduced information asymmetries between insiders and outsiders. A wider variety of alternative specications were also tested, which are available in the Web appendix. To start, a series of regressions were conducted utilizing rm-specic mentions within various subsets of the top 150 nancial blogs (e.g., top 25, top 50, etc.) as predictors of returns. Results indicate analyses do not appear to be sensitive to the number of top blogs included; rather, coefcients associated with all blog ranking subsets demonstrated consistent negative relationships with stock returns. Moreover, these results indicate blog impact is not limited to simply a few
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top bloggers; in fact, blogs #51-100 have a strong impact on the results. In addition to reasons noted earlier in the Method section, these analyses provide evidence of the appropriateness of using the top 150 blogs as data sources in this context, yet this is not a sine qua non for nding signicant results. Lastly, the web appendix presents a series of tests removing the restriction of all insider buys. Running the analyses on the full sample of data, all model variables were interacted with a variable (Net Purchase Ratio) measuring the directionality of insider trades, with values ranging from 1 for rm weeks with pure selling behavior to +1 for rm weeks with all buying behavior. With insider buying being associated with future increases in stock price, and insider selling associated with future decreases, the directionality of trades has been found to have a strong relationship with the protability of insider trades (e.g., Aboody & Lev, 2000; Lakonishok & Lee, 2001). Similar to Frankel and Li (2004), this fully interacted model tests how blogged information moderates the relationship between directionality of insider trades and subsequent insider trading prots. As with all other tests presented, rm-specic blog posts appear to have played a signicant role in reducing information asymmetries in S&P 500 rms.
Discussion and conclusions

In examining the association between blogging activity and insider trading prots, this study has presented a novel test of the cumulative informational effect of blogs. The results suggest information generated by blog-based nancial analysts is highly relevant to stock market actors. Financial blogs are now a key component of rms information environments; in fact, the ndings suggest blogs may even be more important, collectively, than the traditional information environment represented by nancial analysts and print media. This study adds to the existing media effects literature that considers the implications of both traditional (e.g., Scheufele et al., 2011) and new media sources (e.g., Wei, 2009). Specically, the ndings highlight the decentralization of nancial analysis engendered by the widespread diffusion of blogs. Blogs appear to have resulted in less hierarchical structures associated with the production, acquisition, processing, and diffusion of relevant information. As called for by Wildman (2008), this study also suggests extensions to communication research through the incorporation and further specication of two economics-based concepts. This study leaned on the notion of information environment , which is concerned with the amount, quality, processes, sources, and end users of information available on any given entity. The explicit application of information environment at the individual, group, and movement levels in communication research could facilitate research aimed at such critical issues as the relative importance of original versus disseminated information (i.e., echo effect), the ow of information through critical networks, and the determinants of the collective quality of an entitys information sources.
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Arguably, the more critical addition to the communication literature is the notion of information asymmetry. It is often not possible to determine the precise amount of information that an actor possesses or acquires. However, as demonstrated here, researchers may be able to assess the direct effects of information asymmetries, and relate them to changes in information production. By examining the ability of blogbased analysts to limit insiders unfair information advantage, as measured by the prot differential between insider and outsider trades, this study has demonstrated a robust way of measuring the aggregate effects of nancial blogging activity. This study brings to light a number of avenues for future research. To start, communication scholars could extend the approach presented here by examining how decentralized knowledge production impacts detrimental real-world effects of information asymmetries in other contexts. For example, extending the approach to political communication, one might examine the effects of blog-based amateur political analysts on the stock of a particular politician. One could examine a cross-section of politicians in an electoral cycle and see whether the amount of content generated for competitors reduces the spread between the winner and loser(s) of each campaign. Second, implicit in this study is a delineation between information production and acquisition. This study has focused explicitly on bloggers knowledge production; and, in so doing, has indirectly focused on investors acquisition of knowledge. However, much can happen in between these two processesespecially with the dissemination, aggregation, and (for lack of a better word) refactoring of information that are increasingly prevalent on social media sites. Benets would accrue from seeking greater precision with respect to the theoretical and empirical linkages of discrete informational processes. Another element implicit in this analysis is further theoretical rigor with respect to the type of information being produced. This study has looked at bloggers mainly interested in generating new analyses. Other studies have explored new mediabased rumors, opinions, and deliberate manipulation (e.g., Frieder & Zittrain, 2006; Tumarkin & Whitelaw, 2001). The literature might benet from further typology development and theory-building with respect to the value of these information types to different segments of society. One limitation of this study is its concentration on the size of the traditional and blog-based information environments. Specically, quantityrather than contentof blog postings was placed at the forefront of analyses. The authors suggest quantity of postings drives reductions in information asymmetry, as increased publication of any information results in less advantage to rm insiders, who no longer possess unique information or information of previously low reach to rm outsiders. However, content should not be overlooked, as it may determine the specic behaviors taken by actors in response to information. Future research could hence seek to measure other characteristics of blog posts, such as information quality, originality, or the degree of positive or negative sentiment, to extend current ndings or test alternate explanations for the observed negative association between blog-based
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coverage and insider trading protability. One possible path for future research may be to determine if blog-based analysts act as opinion leadersdisseminating information to the massesor if they are more important due to their role in producing unique information and analysis. Future research could also compare characteristics of blogospheres (e.g., political, nancial). Although trends such as rapid dissemination of information and user feedback are prevalent across blog types, the nancial blogosphere may be somewhat unique in that its readers often seek to anticipate market reaction to disseminated information. In other (nonnancial) domains, measurable reactions to knowledge production (i.e., reactions analogous to changes in stock price) may be harder to come by or may not be quickly anticipated by blog readers. Along these lines, future studies might usefully explore how quickly blogged information penetrates networks of market actors. Lastly, the eld might benet from studies that explore informational microprocesses both in and through nancial communities. New media have resulted in a reduction of the costs of information production, acquisition, and dissemination. However, research has failed to consider that actors involved in these information processes are embedded in complex virtual networks. Prior capital markets research, notably, has been absorbed by the type and quantity, and to a lesser extent the quality, of information that has been disclosed by rms or generated by investors and other market actors. What has not been studied explicitly are the processes, including the speed and paths of information ows, by which online information spreads to market participants. As these networks affect information transformation and aggregation, it is critical to develop and test theories that account for key characteristics of this networked context. In effect, much work remains to be done in considering information ows in the capital markets, and it is here that the theories, methods, and conceptual tools of communication scholars could prove invaluable. If communication scholars were to rely on their expertise to measure the differences in information production, ows, and network structure of the information environment, among other aspects, then there is readily available, large-scale, comparable, reliable, cross-sectional data on thousands of publicly traded companies that can be tapped to measure the effects of variation in these informational processes. By merging the latest conceptual and analytical tools from communication and nancial economics, tests could be conducted on the importance of the ever-growing online networks of professional and amateur investors, analysts, and journalists in determining market outcomes. The capital markets effectively provide an exciting venue for developing and testing communication theories.
Acknowledgments

Thanks to Todd Enders and FirstRain for supplying blogging and news data, and Tom Feeley, Veljko Fotak, Feng Gu, and Shane Dikolli for feedback and advice.
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The authors would also like to thank the Editor-in-Chief, Malcolm Parks, and the two anonymous reviewers for their helpful suggestions.
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