Investors throughout the world, including an estimated 80% of investors in China and India, are now trading online (FinWeek, 2011). Low transaction costs, easy access, and aggressive marketing by online brokerage companies are attracting investors in unprecedented numbers. Online brokers also recently have launched a dizzying array of services available through mobile technologies, including applications for the iPhone and BlackBerry, guaranteed to make online trading more accessible, convenient and attractive than ever.
The impact online trading has on investors is complex, and there is reason for concern. According to Barber and Odean (2002), investors earn less when they move to the online environment. They write, “Those who switch to online trading perform well prior to going online, beating the market by more than 2% annually. After going online, they trade more actively, more speculatively, and less profitably than before—lagging the market by more than 3% annually” (Barber & Odean, 2000, p. 455). Frith (2011) agrees that “the speed and volatility of such instant trading has made it riskier for small investors” (p. 52).
How investors find and use financial information is also transformed in the online environment (Barber & Odean, 2001). Online investors, who are more likely to be new to investing, avoid interacting with brokers (Barber & Odean, 2001). Forgoing the counsel of professional advisors places the burden for finding, evaluating and using information squarely on the shoulders of investors. Online investors are also more likely to restrict their information search to online sources (Williamson, 2008). Williamson and Smith (2010) conclude that online investors need help “dealing with information overload, learning to balance the need for speedy delivery of information with making considered investment decisions, undertaking systematic analysis using information, [and] using advice from interpersonal sources of information judiciously” (p. 72).
Although a burgeoning body of research on investors’ information behavior exists to provide such an understanding, less is known about it in virtual environments. Understanding information behavior in online discussion environments is important not only because of its impact on the success or failure of individual investors, but also because collectively their results affect the entire market (Barber & Odean, 2001). In fact, research demonstrates that information disseminated in online forums may have a direct and significant impact on stock price movement (Antweiller & Frank, 2004; Regnier, 1999). Furthermore, information or misinformation can be introduced and circulated in chat forums for the express purpose of manipulating stock prices, so it is critically important online investors know how to evaluate the quality of information they find there (Langevoort, 2002). This article reports on a study of investors’ information sharing and use in virtual discussion forums conducted by analyzing the content and context of citations to formal information sources. It describes the types of sources used, analyzes the collaborative information behavior exhibited, and demonstrates how Internet discussion groups function as investment information channels.