Social Media, News Media and the Stock Market

41 Pages Posted: 2 Apr 2016 Last revised: 6 Jul 2016

Peiran Jiao

University of Oxford - Nuffield College

Andre Veiga

University of Oxford - Nuffield College

Ansgar Walther

University of Oxford - Nuffield College

Date Written: July 6, 2016

Abstract

We contrast the impact of traditional news media and social media coverage on stock market volatility and trading volume. We develop a theoretical model of asset pricing and information processing, which allows for both rational traders and a variety of commonly studied behavioural biases. The model yields several novel and testable predictions about the impact of news and social media on asset prices. We then test the model’s theoretical predictions using a unique dataset which measures coverage of individual stocks in social and news media using a broad spectrum of print and online sources. Stocks with high social media coverage in one month experience high idiosyncratic volatility of returns and trading volume in the following month. Conversely, stocks with high news media coverage experience low volatility and low trading volume in the following month. These effects are statistically and economically significant and robust to controlling for stock and time fixed effects, as well as time-varying stock characteristics. The empirical evidence on news media is consistent with a market in which some traders are overconfident when interpreting new information. The evidence on social media is consistent with Tetlock’s (2011) “stale news” hypothesis (investors treat repeated information on social networks as though it were new) and with a model where investors’ perceptions are subject to random sentiment shocks.

JEL Classification: G02, G12, G14

Suggested Citation

Jiao, Peiran and Veiga, Andre and Walther, Ansgar, Social Media, News Media and the Stock Market (July 6, 2016). Available at SSRN: https://ssrn.com/abstract=2755933 or http://dx.doi.org/10.2139/ssrn.2755933

Peiran Jiao

University of Oxford - Nuffield College ( email )

New Road
Oxford, OX1 1NF
United Kingdom

Andre Veiga (Contact Author)

University of Oxford - Nuffield College ( email )

New Road
Oxford, OX1 1NF
United Kingdom

HOME PAGE: http://www.andreveiga.com

Ansgar Walther

University of Oxford - Nuffield College ( email )

New Road
Oxford, OX1 1NF
United Kingdom

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