The "CAPS" Prediction System and Stock Market Returns

Christopher N. Avery, Judith Chevalier and Richard Zeckhauser

Scholarly Articles from Harvard Kennedy School of Government

Abstract: We study the predictive power of approximately 2.5 million stock picks submitted by individual users to the “CAPS†website run by the Motley Fool company (www.caps.fool.com). These picks prove to be surprisingly informative about future stock prices. Indeed, a strategy of shorting stocks with a disproportionate number of negative picks on the site and buying stocks with a disproportionate number of positive picks produces a return of over nine percent per annum over the sample period. These results are mostly driven by the fact that negative picks on the site strongly predict future stock price declines; positive picks on the site produce returns that are statistically indistinguishable from the market. A Fama French decomposition suggests that these results are largely due to stock-picking rather than style factors or market timing.

Date: 2011
New Economics Papers: this item is included in nep-fmk and nep-for
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Published in HKS Faculty Research Working Paper Series

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http://dash.harvard.edu/bitstream/handle/1/5098427 ... alier_Zeckhauser.pdf (application/pdf)

Related works:
Journal Article: The "CAPS" Prediction System and Stock Market Returns (2016)
Working Paper: The "CAPS" Prediction System and Stock Market Returns (2011)
Working Paper: The "CAPS" Prediction System and Stock Market Returns (2011)
Working Paper: The "CAPS" Prediction System and Stock Market Returns (2009)
Working Paper: The CAPS Prediction System and Stock Market Returns (2009)
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