One of the primary functions of markets is to aggregate information to help investors make investment decisions. This aggregation, however, is usually imperfect as evidenced in the dispersion of market prices. But the advent of Wikipedia may be shaking that up.

Wikipedia allows users to not only consume but contribute information, thus providing a platform for potentially better aggregation of information. That function is leading it to affect market information in two important ways, according to research by Prof Michael Zhang and Prof Sean Xu.

On the one hand, Wikipedia can reduce the effects of analyst dispersion in which managers tend to delay the disclosure of bad news. On the other, it can reduce the effect of analyst bias in which managers may feel pushed to disclose unfavorable information when analysts are far off the mark about firm earnings.

These findings, based on an analysis of the relationship between earnings, news thought_leaderships and Wikipedia modifications in 161 public companies, support the "mosaic" notion of the market environment.

"The central tenet of the mosaic perspective - that information is multi-faceted and that both quantified and qualitative information are useful - implies that the advent of detailed, linguistic information in Wikipedia would profoundly change investors' information environment," they say.

The authors considered how Wikipedia influenced both manager and investor behaviors. Importantly, Wikipedia supports a neutral point of view which prohibits unduly avoiding or highlighting favorable or unfavorable information.

They focused in particular on the timing of when information was disclosed by managers ahead of official announcement days - something that can be used to influence investor sentiment. In non-Wikipedia studies managers have tended to delay disclosure of bad news when analyst forecasts were highly dispersed - that is, when there was no consensus in the market. This implied that the manager had an information advantage.

"Although this is still seen in our study, the delay is shortened by Wikipedia's information aggregation, suggesting that Wikipedia weakens information asymmetry between managers and investors," they say.

Wikipedia also seems to mitigate the impact of analyst bias in which analysts may be too optimistic prior to official announcement dates, forcing the manager to tone down expectations because otherwise the company could be at risk of a large stock-price decline.

"Aggregation on Wikipedia helps alleviate managers' concerns, thus making management's disclosure timing less dependent on analyst bias."

Turning to investor reaction, the authors find that this, too, is moderated by Wikipedia modifications. "Although Wikipedia may not be the only means by which investors can enjoy the benefits of social media, the results suggest a market adjustment associated with information aggregation on Wikipedia before a firm announced bad news."

The findings imply investors can benefit from the value of information aggregation offered by services such as Wikipedia. Managers, though, lose their information advantage although their litigation concerns from analyst bias are reduced. "It may be necessary for managers to change their mindset and embrace benefits brought about by new media," they say.

The authors also point out that whereas news media reports quickly fade away, Wikipedia is a cumulative record of important company events. Its effects on investors, managers and regulators therefore could be long-lasting.