Online investor disagreement, self-attribution bias, and future stock returns

Abstract We propose a new mechanism based on self-attribution bias to understand how investor disagreement in online forums affects stock returns. As stock prices rise (fall), this bias amplifies the sentiment of initially optimistic (pessimistic) investors more than that of initially pessimistic (optimistic) investors, causing a shift in the stock’s overall sentiment toward optimism (pessimism). For stocks with higher levels of online disagreement, the sentiment shift becomes more pronounced because of a broader distribution of both optimistic and pessimistic investors. Given the driving influence of online investor sentiment shifts on stock mispricing, this can lead to corresponding return effects. Our evidence supports this mechanism.