Earnings Uncertainty and Nonprofessional Intermediaries

Abstract

Prior research is mixed on individual investors’ ability to utilize earnings information and generally credits professional information intermediaries with alleviating processing costs. Over the past decade, individual investors increasingly rely on online social networks to help them process the information they use to trade. This paper investigates the role of earnings uncertainty (persistence, predictability, smoothness, and accrual quality) as a processing cost and the ability of nonprofessional intermediaries to ameliorate this cost. Using comments and trades made on a popular social trading platform as raw and applied information, respectively, I show that raw information is impeded by earnings uncertainty while applied information reduces integration costs to improve the use of earnings information.