News Diffusion in Social Networks and Stock Market Reactions

79 Pages Posted: 12 Apr 2021 Last revised: 3 Apr 2023

See all articles by David A. Hirshleifer

David A. Hirshleifer

Marshall School of Business, USC; National Bureau of Economic Research (NBER)

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Qiguang Wang

Hong Kong Baptist University (HKBU)

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Date Written: April 10, 2021

Abstract

We study how the social transmission of public news influences investors' beliefs and securities markets. Using data on investor social networks, we find that earnings announcements from firms in higher-centrality locations generate stronger immediate price, volatility, and trading volume reactions. Post announcement, such firms experience weaker price drift and faster volatility decay but higher and more persistent volume. This evidence suggests that greater social connectedness promotes timely incorporation of news into prices, but also opinion divergence and excessive trading. We propose the social churning hypothesis and present supporting evidence with granular data from StockTwits messages and household trading records.

Keywords: Social Networks, Information Diffusion, Earnings Announcement, Investor Attention, Disagreement, Social Finance

JEL Classification: G1, G4

Suggested Citation

Hirshleifer, David A. and Peng, Lin and Wang, Qiguang, News Diffusion in Social Networks and Stock Market Reactions (April 10, 2021). Available at SSRN: https://ssrn.com/abstract=3824022 or http://dx.doi.org/10.2139/ssrn.3824022

David A. Hirshleifer

Marshall School of Business, USC ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.uci.edu/dhirshle/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Qiguang Wang (Contact Author)

Hong Kong Baptist University (HKBU) ( email )

Department of Economics
Kowloon, Hong Kong
Hong Kong

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