The Social Media Risk Premium
72 Pages Posted: 29 Jan 2020 Last revised: 9 Jun 2021
Date Written: January 10, 2020
Social media has become a real part of Main Street and Wall Street. Social media risk is hard to diversify, since it is a catalyst for contagion, causing an issue to `go viral' and affect a wide cross-section of firms. We show that institutional and retail investors demand a risk premium from stocks and bonds with higher social media betas. Unlike other risk factors whose origin is hard to pin down, social media risk is linked exclusively to the age of social media and did not exist prior to the rise of today's social media giants. Social media risk carries an annual risk premium of 7.2% in stocks and 3.3% in bonds.
Keywords: Social media risk factor, cross-section of stock and bond returns, machine learning, Twitter.
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation