Investor Sentiment, Social Media and Stock Returns: Wisdom of Crowds or Power of Words?

40 Pages Posted: 10 May 2021 Last revised: 9 Jun 2022

See all articles by Ioanna Lachana

Ioanna Lachana

University of London - Birkbeck College

David Schröder

University of London - Birkbeck College

Date Written: April 13, 2022

Abstract

Research in behavioural finance has shown the importance of investor sentiment to explain stock market returns. In light of the changes in the media landscape from traditional print media towards social media platforms, this paper analyses and compares the ability of investor sentiment measures obtained from various media sources to predict stock market returns. Using a large data set of daily articles and reader comments from 2006 to 2020, this study shows investor sentiment extracted from social media is better in predicting stock market returns than investor sentiment obtained from traditional print media sources. Additional analyses show that social media is more suitable to extract investor sentiment mainly because of the richer language and timeliness of online media. In contrast, the larger set of articles published on social media platforms as well as the greater variety of contributors cannot explain the relative advantage of social media.

Keywords: Investor sentiment, text mining, financial markets, traditional media, social media, stock returns.

JEL Classification: G11, G40, D53

Suggested Citation

Lachana, Ioanna and Schroeder, David, Investor Sentiment, Social Media and Stock Returns: Wisdom of Crowds or Power of Words? (April 13, 2022). Available at SSRN: https://ssrn.com/abstract=3842039 or http://dx.doi.org/10.2139/ssrn.3842039

Ioanna Lachana (Contact Author)

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

David Schroeder

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

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