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Is All That Twitters Gold? Social Media Attention and Stock Returns

74 Pages Posted: 1 Aug 2017 Last revised: 7 Sep 2017

David A. Rakowski

University of Texas at Arlington

Sara E. Shirley

Middle Tennessee State University

Jeffrey R. Stark

Middle Tennessee State University

Date Written: September 6, 2017

Abstract

We show that increased investor attention, as measured by changes in Twitter activity, leads to greater stock visibility, noise trading, and temporary return spikes. These effects are concentrated among smaller, hard to arbitrage stocks, with greater individual ownership. Furthermore, a trading strategy based on the Twitter relationship generates annual excess returns of 58.10 percent. Under the right conditions, increased Twitter activity also stimulates the spread of fundamental news to a wider audience. When news stories about small firms occur in conjunction with an increase in Twitter activity, the following day’s permanent stock return impact nearly doubles, and is consistent with a reduction of informational asymmetries.

Keywords: Twitter, Microblogging, Stock Market, News, Investor Attention, Social Media, Behavioral Finance, Noise Trading, Stock Returns

JEL Classification: G10, G12, G14, G23

Suggested Citation

Rakowski, David A. and Shirley, Sara E. and Stark, Jeffrey R., Is All That Twitters Gold? Social Media Attention and Stock Returns (September 6, 2017). Available at SSRN: https://ssrn.com/abstract=3010915

David A. Rakowski

University of Texas at Arlington ( email )

Box 19449 UTA
Arlington, TX 76019
United States

Sara E. Shirley

Middle Tennessee State University ( email )

Murfreesboro, TN 37132
United States

Jeffrey R Stark (Contact Author)

Middle Tennessee State University ( email )

Murfreesboro, TN
United States

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