The Rise of the Finfluencer

75 Pages Posted: 7 Apr 2023 Last revised: 30 Sep 2023

See all articles by Sue S. Guan

Sue S. Guan

Santa Clara University School of Law

Date Written: December 1, 2022

Abstract

In today’s meme-riddled stock market, how viable do traditional theories of information exchange and price discovery remain? The conventional understanding of stock market price discovery focuses on the exchange of “information,” typically tied to the present value of an issuer’s future cash flows, between traders. This paper explores the impact of “finfluencers”—those who wield outsize influence on investing decisions through social media—on this understanding.

Finfluencers increasingly broker stock market information. Social media makes doing so easier than ever before. This paper explores two implications of the rise of finfluencers. First, finfluencers are not solely motivated to seek out fundamental value information and trade to profit off of it. Instead, they try to maximize popularity, be entertaining, and “grow their brand,” among other motivations. Because they mediate the information that reaches retail investors and provide powerful coordination mechanisms across those investors, finfluencers’ influence shapes the types of “information” and motivations that are reflected in stock price movements. Second, the more influence finfluencers wield, the more they can predict and even control trading patterns among their followers. From a finfluencer’s perspective, stock price movements can become more predictable, which can weaken finfluencers’ incentives to provide valuable information to their followers and make profiting at the expense of their followers more tempting.

Finfluencers are shifting the stock market information ecosystem. By drawing on microstructure and financial economics, this paper offers a new understanding of how and explores implications for price discovery, trading strategies, corporate behavior, and policy.

Keywords: meme stocks, retail investors, microstructure, stock markets, securities regulation

Suggested Citation

Guan, Sue, The Rise of the Finfluencer (December 1, 2022). 19 New York University Journal of Law and Business 489 (2023), Santa Clara Univ. Legal Studies Research Paper No. 4400042, Available at SSRN: https://ssrn.com/abstract=4400042 or http://dx.doi.org/10.2139/ssrn.4400042

Sue Guan (Contact Author)

Santa Clara University School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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