74 Pages Posted: 1 Aug 2017 Last revised: 7 Sep 2017
Date Written: September 6, 2017
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: 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