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The 'Sixth' Factor -- Social Media Factor Derived Directly from Tweet Sentiments

15 Pages Posted: 9 Jan 2016 Last revised: 21 Feb 2016

Jim Kyung-Soo Liew

Johns Hopkins University - Carey Business School

Tamás Budavári

Johns Hopkins University - Department of Applied Mathematics and Statistics

Date Written: January 6, 2016

Abstract

In this work, we document that the characteristics of securities derived from social media have significant power in explaining the time-series variation in daily stock returns. We examine the recent period from January 4, 2012 to October 30, 2015 in conjunction with direct tweet sentiments as provided by StockTwits. Notably, our “Social Media company-specific” factor is very different from prior “macro” factors. The Social Media Factor consists of views generated directly from the crowd on specific securities. Some have argued that this exposure to tweet sentiments is just noise and should not merit any compensation over time, reducing this factor to irrelevance. We disagree. Moreover, we document that the Social Media Factor, the “sixth” factor, is distinct from the traditional five factors authored by Fama and French (1992, 1993, and 1994).

Keywords: Social Media Factor, tweet sentiment, Fama-French Factors, social media data, tweets

Suggested Citation

Liew, Jim Kyung-Soo and Budavári, Tamás, The 'Sixth' Factor -- Social Media Factor Derived Directly from Tweet Sentiments (January 6, 2016). Available at SSRN: https://ssrn.com/abstract=2711825 or http://dx.doi.org/10.2139/ssrn.2711825

Jim Kyung-Soo Liew (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Tamas Budavari

Johns Hopkins University - Department of Applied Mathematics and Statistics ( email )

3400 N Charles Street
Whitehead 100
Baltimore, MD 21218
United States

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