Social Sentiment and Asset Prices

Abstract

This paper shows that shifts in social sentiment affect stock prices. We use the Internet search volume on corporate social responsibility to capture investors’ social sentiment shifts. Stocks with the most positive return sensitivity to social sentiment attract higher institutional demand and earn positive abnormal returns. A trading strategy that exploits the demand-based return predictability generates risk-adjusted returns of 0.46% per month. Further, the return predictability is stronger for stocks headquartered in regions with lower social sentiment. Social sensitivity does not predict firm profits. Overall, these results are consistent with the stock market mispricing stocks’ social sensitivity.

Keywords: corporate social responsibility; investor attention, socially responsible investing, return predictability, social sentiment

JEL Classification: G02, G11, G12