Informational inefficiency in financial markets

The existence of an informational inefficiency in the equity market is identified by analysing information publicly available on the internet. A large volume of blog data is used for this purpose. Informational inefficiency is established by converting company-specific blog sentiment data into a trading strategy and analysing its performance. An information-based model that approximately replicates the strategy is developed to estimate the degree of information disparity. The result shows that an efficient internet search engine can considerably enhance market efficiency, as measured in terms of the information flow rate.