The Impact of Word-of-Mouth Communication on Investors' Decisions and Asset Prices

Abstract

I review the empirical literature on word of mouth (WOM) among investors. I begin with an outline of the empirical challenges that WOM research faces and possible strategies for overcoming those challenges. I then discuss recent studies on WOM among retail and institutional investors. The research to date provides compelling evidence that WOM importantly determines investment decisions. On balance, the information transmitted through WOM does not appear to help investors make better investment decisions. I explore possible reasons. I also discuss potential asset-pricing implications, the emergence of social technologies, and possible avenues for future research.

Keywords

Tags of Social Finance