Twitter Activity, Investor Attention, and the Diffusion of Information

Abstract

Measures of information traditionally arise from curated, professional sources such as newspapers, analyst coverage, earnings announcements, and business news wires. We utilize Twitter activity to examine the impact of attention generated by individuals. Causal evidence shows that Twitter activity has a direct impact on trading volume in financial markets. Furthermore, increases in Twitter activity are associated with positive abnormal returns and, when occurring in conjunction with traditional information supply events, increase the diffusion of information to investors. Our results identify conditions under which attention generated by individuals drives price discovery and trading activity.

Keywords: Twitter, Investor Attention, Social Media, Behavioral Finance, Asset Pricing, Spread of Information

JEL Classification: G10, G12, G14, G23