The "CAPS" Prediction System and Stock Market Returns

Christopher Avery, Judith A. Chevalier, Richard J. Zeckhauser

NBER Working Paper No. 17298
Issued in August 2011
NBER Program(s):Asset Pricing

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.

A non-technical summary of this paper is available in the December 2011 NBER Digest.  You can sign up to receive the NBER Digest by email.

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Document Object Identifier (DOI): 10.3386/w17298

Published: Christopher N. Avery & Judith A. Chevalier & Richard J. Zeckhauser, 2016. "The “CAPS” Prediction System and Stock Market Returns," Review of Finance, vol 20(4), pages 1363-1381. citation courtesy of

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