Nonlocal Disadvantage: An Examination of Social Media Sentiment

60 Pages Posted: 17 Jun 2011 Last revised: 27 Apr 2017

See all articles by Robert Charles Giannini

Robert Charles Giannini

Citadel

Paul J. Irvine

Neeley School of Business

Tao Shu

The Chinese University of Hong Kong, Shenzhen; Shenzhen Finance Institute

Date Written: April 20, 2017

Abstract

202,616 Twitter posts covering 1,082 firms from November 2008 to June 2011 reveal that nonlocal Twitter posters consistently exhibit negative stock return predictability. Since nonlocal posts dominate the sentiment information from social media, this contrarian result highlights the danger of naïve reliance on social media sentiment. Nonlocal posters tweet positively about overvalued stocks that subsequently underperform while local posters do not exhibit such failing, which is consistent with geographical proximity reducing investor irrationality. The nonlocal disadvantage is larger in firms without public news and firms with higher information asymmetry, suggesting that richer information environments constrain the exuberance of nonlocal investors.

Keywords: Twitter, Social Network, Individual Investors, Nonlocal Disadvantage, Public News, Overpricing

JEL Classification: G14, G02

Suggested Citation

Giannini, Robert Charles and Irvine, Paul J. and Shu, Tao, Nonlocal Disadvantage: An Examination of Social Media Sentiment (April 20, 2017). Available at SSRN: https://ssrn.com/abstract=1866267

Robert Charles Giannini

Citadel ( email )

NY
United States

Paul J. Irvine

Neeley School of Business ( email )

Fort Worth, TX 76129
United States

Tao Shu (Contact Author)

The Chinese University of Hong Kong, Shenzhen ( email )

Shenzhen Finance Institute ( email )

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