Does Monetary Incentive Lead to Better Stock Recommendations on Social Media?

Abstract

Social media not only is a new channel to obtain financial market information but also becomes the venue for investors to share and exchange investment ideas. We examine the performance consequences of providing monetary incentive to amateur analysts on social media and its implications for crowd-sourced equity research. We find that monetary incentive is effective in increasing the amount of content outputs but does not lead to better stock recommendations. Additional analysis suggests that monetary incentive results in wider stock coverage, a sign of increased content diversity. This study contributes to the understanding of incentive mechanisms for social media communities in the financial context.