The Good, the Bad, and the Social Media: Financial Implications of Social Media Reactions to Firm-Related News

Journal of Management Information Systems (Forthcoming)

59 Pages Posted: 27 Apr 2020 Last revised: 8 Apr 2022

See all articles by Jing Peng

Jing Peng

University of Connecticut - Department of Operations & Information Management

Juheng (Julie) Zhang

University of Massachusetts Lowell

Ram Gopal

University of Warwick

Date Written: March 26, 2022

Abstract

Firms and investors often react to financial news on social media. However, how they react to news of different nature and whether their reactions influence the stock market are far from clear. Employing data on financial news, tweets posted by firms and investors, and daily stock prices, we find that firms are more responsive to news with positive sentiment and low uncertainty, whereas investors are more responsive to news with high uncertainty. Moreover, the increased tweeting activities of firms and investors can improve the stock returns of firms. We further show that investors’ social media reactions to news and the subsequent influence on stock returns depend on firm size. This paper provides a fuller picture of how firms, investors, and the stock market react to financial news, and reveals the nuanced interactions among them. We discuss how firms and investors can better leverage social media to improve stock performance.

Keywords: news, social media, sentiment, uncertainty, stock return, information environment

Suggested Citation

Peng, Jing and Zhang, Juheng and Gopal, Ram, The Good, the Bad, and the Social Media: Financial Implications of Social Media Reactions to Firm-Related News (March 26, 2022). Journal of Management Information Systems (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3567201 or http://dx.doi.org/10.2139/ssrn.3567201

Jing Peng (Contact Author)

University of Connecticut - Department of Operations & Information Management ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

Juheng Zhang

University of Massachusetts Lowell ( email )

1 University Ave
Lowell, MA 01854
United States

Ram Gopal

University of Warwick ( email )

West Midlands, CV4 7AL
United Kingdom

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