Social Media Discussion of Sell-Side Analyst Research: Evidence from Twitter

Abstract

We examine Twitter discussion of sell-side analysts’ stock recommendation revisions. While many investors lack direct access to analyst research, we observe revision-related Twitter discussion associated with approximately 90% of the revisions in our sample, usually within three hours of their announcement. Revision-related Twitter discussion is more extensive for upgrades and for analysts from larger brokerages. Examining within-revision intraday price discovery, we also observe increased levels of price discovery during intraday windows with more revision-related tweets, especially for tweets with more user engagement, those posted by more influential authors, and for stocks with more intense retail trading volume. Finally, we find that revision-related retail trading is more intense and better predicts future returns for revisions with more revision-related Twitter discussion. However, we observe no such evidence for institutional investors who typically have direct access to sell-side research. Overall, our results suggest that Twitter is an important channel in facilitating price discovery following analyst revisions, particularly among retail investors.

Keywords: Sell-side analysts, analyst recommendations, social media, Twitter, retail investors

JEL Classification: D62, D83, D84, G14, G24, M40, M41