The Information Content of Pre-Open Social Media
20 Pages Posted: 6 Apr 2016
Date Written: April 4, 2016
Social media discussion of financial instruments and markets contains significant information about the broad market as well as individual stock returns. While the importance of social media in event driven trades is well understood, it is less clear whether large message volumes, when aggregated, can have useful information about the future. We demonstrate the value of such information by using pre-open social media data to predict the day’s price behavior. There is a positive relationship between pre-open social media sentiment and returns over the trading day and a negative relationship between uncertainty and the day’s returns. Pre-open uncertainty expressed in social media also leads to greater trading volatility as well as higher trading volumes.
Keywords: social media, return predictability, volatility, twitter, stocktwits, pre open
JEL Classification: G12, G14
Suggested Citation: Suggested Citation