Local Information Advantage and Stock Returns: Evidence from Social Media

55 Pages Posted: 27 Sep 2014 Last revised: 16 Jan 2024

See all articles by Yuqin Huang

Yuqin Huang

Central University of Finance and Economics (CUFE)

Feng Li

Peking University - Guanghua School of Management

Tong Li

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: January 15, 2024

Abstract

We examine the information asymmetry between local and nonlocal investors with a large dataset of stock message board postings. We document that abnormal relative postings of a firm, i.e., unusual changes in the volume of postings from local versus nonlocal investors, capture locals' information advantage. This measure positively predicts firms' short-term stock returns as well as those of peer firms in the same city. Sentiment analysis shows that posting activities primarily reflect good news, potentially due to social transmission bias and short-sales constraints. We identify the information driving return predictability through content-based analysis. Abnormal relative postings also lead analysts' forecast revisions. Overall, investors' interactions on social media contain valuable geography-based private information.

Keywords: Local Information Advantage, Social Media, Topical Analysis, Sentiment Analysis, Return Predictability

JEL Classification: D82, G12, G14

Suggested Citation

Huang, Yuqin and Li, Feng and Li, Tong and Lin, Tse-Chun, Local Information Advantage and Stock Returns: Evidence from Social Media (January 15, 2024). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2501937 or http://dx.doi.org/10.2139/ssrn.2501937

Yuqin Huang (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

Shahe Higher Education Park
Changping District
Beijing, Beijing 100081
China

Feng Li

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Tong Li

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Xiamen
China

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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