Communication and Comovement: Evidence from Online Stock Forums

Abstract

We study investor communication and stock comovement using a novel dataset for an active online stock forum in China. We find substantial comovement among the returns of a stock and its “related stocks,” which are frequently discussed in the sub-forum dedicated to the given stock. Comovement is greater when the discussion of related stocks is more intensive. Further, the effect of communication on comovement is stronger for stocks associated with higher information uncertainty. Co-discussed stocks are more actively traded and experience more correlated trading. A trading strategy that exploits communication-driven comovement generates abnormal returns. Our findings highlight the impact of investor communication on asset comovement.

Keywords: Comovement; Asset Returns; Communication

JEL Classification: G12, G14, D83