The Social Internetwork and Stock Returns

52 Pages Posted: 16 Dec 2019 Last revised: 23 Dec 2019

See all articles by M. Al Guindy

M. Al Guindy

Carleton University - Eric Sprott School of Business

Ryan Riordan

Queen's University - Smith School of Business

Date Written: November 15, 2019

Abstract

We construct the network of U.S. firms implied by social media. We identify connections between firms and use these to construct a network that we call The Social Internetwork. The Social Internetwork describes deep, non-obvious links between firms that subsume product-supplier, industry, or news implied networks – thereby providing a more complete representation of the U.S. economy. Using own and peer stock returns, we show that information in the form of earnings surprises, and noise in the form of transitory stock returns, are transmitted across the network. Stock price changes at the most central firms in the economy ripple outwards to the most peripheral firms. We show that 17% of firms are linked directly and 92% of firms are linked indirectly through one other firm – suggesting that the economy may be more interconnected and potentially riskier and more prone to contagion than initially thought. Our Social Internetwork provides an accurate depiction of the network of firms as seen by a broad cross-section of the public, and may therefore be more accurate, timely, and dynamic than other measures.

Keywords: Networks, Cross-Asset Learning, Peer Firms, Wisdom of the Crowd

JEL Classification: G12, G14, G18

Suggested Citation

Al Guindy, M. and Riordan, Ryan, The Social Internetwork and Stock Returns (November 15, 2019). Available at SSRN: https://ssrn.com/abstract=3501915 or http://dx.doi.org/10.2139/ssrn.3501915

M. Al Guindy (Contact Author)

Carleton University - Eric Sprott School of Business ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S SB6
Canada

Ryan Riordan

Queen's University - Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
52
Abstract Views
275
rank
393,399
PlumX Metrics