The Social Media Risk Premium
48 Pages Posted: 29 Jan 2020
Date Written: January 10, 2020
Using novel corporate Twitter data on all U.S. public firms, we show that firms with a Twitter account earn 50 basis points per month higher returns than similar firms without a Twitter account. This `Twitter premium' is higher among smaller firms and firms with higher fundamentals uncertainty, and is not explained by existing risk-factor models. Having a Twitter account presents opportunities for value creation but also raises social media risks. We show that a social media risk factor is priced in the cross-section of U.S. stock returns and carries a premium of 30 to 75 basis points per month controlling for other risk factors.
Keywords: Stock Returns, Social Media Risk, Social Media Risk Factor, Machine Learning, Twitter
JEL Classification: G11, G12, G14
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