Social Networks and Market Reactions to Earnings News

83 Pages Posted: 12 Apr 2021

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)

Date Written: April 10, 2021

Abstract

Using social network data from Facebook, we show that earnings announcements made by firms located in counties with higher investor social network centrality attract more attention from both retail and institutional investors. For such firms, the immediate price and volume reactions to earnings announcements are stronger, and post-announcement drift is weaker. Such firms have lower post-announcement persistence of return volatility but higher persistence in investor attention and trading volume. These effects are stronger for small firms, firms with poor analyst and media coverage, and for stocks with salient returns. Our evidence suggests a dual role of social networks---they facilitate the incorporation of public information into prices, but also trigger persistent excessive trading.

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

JEL Classification: G1, G4

Suggested Citation

Hirshleifer, David A. and Peng, Lin and Wang, Qiguang, Social Networks and Market Reactions to Earnings News (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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