Information Diffusion on Social Media: Does It Affect Trading, Return, and Liquidity?
54 Pages Posted: 20 Mar 2017 Last revised: 23 Mar 2017
Date Written: November 5, 2016
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: Suggested Citation