Pulling the Plug: Retail Traders and Social Media

39 Pages Posted: 7 Sep 2021 Last revised: 9 Jan 2024

Date Written: August 24, 2021

Abstract

Using days on which social media platform connectivity is exogenously interrupted, I
measure the impact of social media on retail trading activity. On these ”outage” days there is
an increase in retail trading volume of social-media discussed stocks. Retail sentiment, while
normally positively predicting retail OIB, on outage days negatively predicts retail OIB. This
is driven mostly by positive sentiment predicting selling. These outage days are associated
with a drop in price which reverses over the next day. To explain the empirical findings, I
extend Pedersen (2022) to include disruptions to social networks, showing that these findings
are consistent with fanatical and rational beliefs spreading to naive investors in a social
network. These findings highlight the important role of social media in retail trader’s belief
formation and the market consequences of this importance.

Keywords: social media, investor activity, stock market liquidity, limited attention, distraction

JEL Classification: D83, G12, G14, L86

Suggested Citation

Mohr, Justin, Pulling the Plug: Retail Traders and Social Media (August 24, 2021). Available at SSRN: https://ssrn.com/abstract=3917950 or http://dx.doi.org/10.2139/ssrn.3917950

Justin Mohr (Contact Author)

UIUC ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

HOME PAGE: http://jmohr.me/

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