Information Diffusion on Social Media: Does It Affect Trading, Return, and Liquidity?

54 Pages Posted: 20 Mar 2017 Last revised: 23 Mar 2017

See all articles by Nitesh Chawla

Nitesh Chawla

University of Notre Dame

Zhi Da

University of Notre Dame - Mendoza College of Business

Jian Xu

University of Notre Dame

Mao Ye

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Date Written: November 5, 2016

Abstract

We track information diffusion in real time by monitoring how the news is tweeted and retweeted on Twitter. We find that news diffusion is highly correlated with intraday trading, especially for retail trading. News diffusion leads to a lower bid-ask spread and price pressure on the news day that is completely reverted the next day. The result is robust when we employ an instrumental variables approach. Our results show that information diffusion via Twitter does not incorporate new information into the stock price. Rather, Twitter spreads stale news, albeit at a much higher speed than traditional media.

Keywords: Information Diffusion, Price Pressure, Social Media, Liquidity

JEL Classification: G10, G20

Suggested Citation

Chawla, Nitesh and Da, Zhi and Xu, Jian and Ye, Mao, Information Diffusion on Social Media: Does It Affect Trading, Return, and Liquidity? (November 5, 2016). Available at SSRN: https://ssrn.com/abstract=2935138 or http://dx.doi.org/10.2139/ssrn.2935138

Nitesh Chawla

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Zhi Da

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Jian Xu

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Mao Ye (Contact Author)

University of Illinois at Urbana-Champaign ( email )

406 Wohlers
1206 South 6th Street
Champaign, IL 61820
United States
2172440474 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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