Signal or Noise in Social Media Discussions: Investigating the Role of Network Cohesion

44 Pages Posted: 9 Jan 2017 Last revised: 13 Nov 2019

See all articles by Peng Xie

Peng Xie

Georgia Institute of Technology - Scheller College of Business

Hailiang Chen

The University of Hong Kong - Faculty of Business and Economics

Yu Jeffrey Hu

Georgia Institute of Technology - Scheller College of Business

Date Written: November 2019

Abstract

Prior studies have shown that social media discussions can be helpful in predicting price movements in financial markets. With the increasingly large amount of social media data, how to effectively distinguish value-relevant information from noise remains an important question. We study this question by investigating the role of discussion network cohesion in the relationship between social media sentiment and price changes. As network cohesion is associated with information correlation within the discussion network, we hypothesize that less cohesive social media discussion networks are better at predicting the next-day returns. We empirically test our hypothesis in the Bitcoin market using message board data collected from Bitcointalk.org. We find results consistent with our hypothesis, and our trading simulations further demonstrate how to exploit network cohesion to distinguish signal from noise in social media data and improve trading profits.

Keywords: social media analytics, network cohesion, financial technology, Bitcoin

Suggested Citation

Xie, Peng and Chen, Hailiang and Hu, Yu Jeffrey, Signal or Noise in Social Media Discussions: Investigating the Role of Network Cohesion (November 2019). Georgia Tech Scheller College of Business Research Paper No. 17-5. Available at SSRN: https://ssrn.com/abstract=2894089 or http://dx.doi.org/10.2139/ssrn.2894089

Peng Xie

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
4043696131 (Phone)

Hailiang Chen (Contact Author)

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

K. K. Leung Building
University of Hong Kong
Hong Kong

HOME PAGE: http://www.fbe.hku.hk/people/academic/hailiang-chen

Yu Jeffrey Hu

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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