Undue Influence? The Effect of Social Media Advice on Investment Decisions

Investors increasingly rely on advice from social media platforms, but the advice provided on these platforms varies widely in its predictive value. In two experiments, we find that investment advice provided on social media is influential even when it has little predictive value. We also find that social media advice affects the investment decisions of investors who believe the advice should not and did not affect their decisions, suggesting that some investors are unaware of its influence. We explore whether specific features of the advice, including its content and the credibility of its source, affect the advice’s influence. We find that investors believe they should rely more on advice about firm fundamentals than advice that conveys only sentiment, but that their investment decisions do not reflect differential reliance. Source credibility also has little effect on advice influence, though investors’ inattention to source credibility appears to be deliberate.