Should Investors Consider the Sentiment of Online Discussions? An Analysis of the Link between Fundamental Information, Social Media Sentiment and the Stock Market

39 Pages Posted: 8 Jul 2021

See all articles by Brigitte Eierle

Brigitte Eierle

University of Bamberg

Sebastian Klamer

University of Bamberg

Matthias Muck

University of Bamberg

Date Written: June 25, 2021

Abstract

This research analyses the link between fundamental information, social media sentiment, and stock returns from 2010 to 2018. We are interested in whether social media sentiment provides additional information to already published fundamental information, such as financial information and analysts forecasts. Therefore, we explore the relationship between fundamental information and sentiment. We find that unexpected earnings, analyst forecast revisions, new dividends, and 8-K filings have a significant impact on sentiment. We introduce the adjusted social media sentiment, which corrects social media sentiment for the impact of this fundamental information. It turns out that adjusted social media sentiment is related to the subsequent stock returns. Moreover, most of social media sentiment's total effect emerges from adjusted sentiment. In particular, stocks with negative sentiment tend to have negative subsequent short-term returns. It is, thus, important to distinguish between positive and negative sentiment. Subsequent long-term returns are more mildly affected suggesting that the impact of negative sentiment seems to be permanent.

Keywords: Return Predictability, Fundamental Information, Wisdom of Crowds, Investor Sentiment, Social Media

JEL Classification: G12, G14, G40

Suggested Citation

Eierle, Brigitte and Klamer, Sebastian and Muck, Matthias, Should Investors Consider the Sentiment of Online Discussions? An Analysis of the Link between Fundamental Information, Social Media Sentiment and the Stock Market (June 25, 2021). Available at SSRN: https://ssrn.com/abstract=3875576 or http://dx.doi.org/10.2139/ssrn.3875576

Brigitte Eierle

University of Bamberg ( email )

Feldkirchenstraße 21
Bamberg, 96052
Germany
00499518632545 (Phone)

HOME PAGE: http://www.uni-bamberg.de/bwl-irwp/home/

Sebastian Klamer (Contact Author)

University of Bamberg ( email )

Feldkirchenstraße 21
Bamberg, 96052
Germany

HOME PAGE: http://www.uni-bamberg.de/bwl-irwp/home/

Matthias Muck

University of Bamberg ( email )

Kärntenstr. 7
Bamberg, 96052
Germany
+49-(0)951-860-2091 (Phone)

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