Informational Role of Social Media: Evidence from Twitter Sentiment

45 Pages Posted: 21 Jul 2018 Last revised: 9 Oct 2020

See all articles by Chen Gu

Chen Gu

Shanghai Business School - Research Center of Finance

Alexander Kurov

West Virginia University - College of Business & Economics

Date Written: October 9, 2020

Abstract

This paper examines the information content of firm-specific sentiment extracted from Twitter messages. We find that Twitter sentiment predicts stock returns without subsequent reversals. This finding is consistent with the view that tweets provide information not already reflected in stock prices. We investigate possible sources of return predictability with Twitter sentiment. The results show that Twitter sentiment provides new information about analyst recommendations, analyst price targets and quarterly earnings. This information explains about one third of the predictive ability of Twitter sentiment for stock returns. Taken together, our findings shed new light on whether and why social media content has predictive value for stock returns.

Keywords: Twitter Sentiment, News Sentiment, Social Media, Return Predictability, Analyst Recommendations, Earnings Forecasts, Target Prices

JEL Classification: G02, G12, G14

Suggested Citation

Gu, Chen and Kurov, Alexander, Informational Role of Social Media: Evidence from Twitter Sentiment (October 9, 2020). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3206093 or http://dx.doi.org/10.2139/ssrn.3206093

Chen Gu

Shanghai Business School - Research Center of Finance ( email )

Shanghai
China

Alexander Kurov (Contact Author)

West Virginia University - College of Business & Economics ( email )

P.O. Box 6025
Morgantown, WV 26506
United States

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