Gender bias and crowd-sourced financial information
| Authors | Bhagwat, Dim, Shirley, Stark |
| Year | 2023 |
| Type | Working Paper |
| Abstract | The capacity to aggregate information from diverse perspectives has positioned social finance forums as a potent source of signals that shape investors' beliefs. We study the Seeking Alpha forum to determine if female contributors face a more hostile environment than males and the consequences for effective information aggregation. We find that although male and female contributors display similar abilities, female-authored perspectives receive significantly lower engagement and trust from platform users. Females also face more heightened disagreement and attract more online trolls. This combative environment results in more female contributors quitting the platform, eroding the informativeness of the platform consensus, and implies relatively lower financial compensation for female contributors. |
| Keywords | Gender bias, social finance, social media, FinTech, information aggregation, disagreement |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4669864 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Propagation of Noise / Undesirable Outcomes |
Social influence in household equity investment: Evidence from randomized military drafts
| Authors | Chi, Hung, Lin, Tseng |
| Year | 2023 |
| Type | Working Paper |
| Abstract | We provide causal evidence of the peer effect on investment in a large-scale natural experiment. We show that retail investors respond to the investment decisions of their military peers who were randomly assigned in compulsory military drafts: retail investors participate more in the stock market, invest more in stocks that peers hold, and perform better. Our investigation indicates that retail investors learn valuable information from their peers to make profitable investment decisions. These effects are more pronounced among peers who are more sophisticated and among stocks entailing less behavioral bias. Stocks with more peer clientele outperform stocks with less clientele. |
| URL | https://sites.google.com/view/timcchung/research |
| Tags | Archival Empirical | Consumer Decisions | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Private communication between managers and financial analysts: Evidence from taxi ride patterns in New York City
| Authors | Choy, Hope |
| Year | 2023 |
| Type | Working Paper |
| Abstract | This study constructs a novel measure that aims to capture face-to-face private communications between firm managers and sell-side analysts by mapping detailed, large-volume taxi trip records from New York City to the GPS coordinates of companies and brokerages. Consistent with earnings releases prompting needs for private communications, we observe that daily taxi ride volumes between companies and brokerages increase significantly around earnings announcement dates (EAD) and reach their peak on EAD. After controlling for an extensive set of fixed effects (firm, analyst, year, and firm-broker) and other potential confounding factors, we find that increases in ride volumes around EAD are negatively associated with analysts' earnings forecast errors in periods after EAD and positively associated with the profitability of recommendations issued after EAD (but these effects dissipate over longer horizons). Taken together, our results suggest that analysts may obtain a private source of information orthogonal to their pre-existing information from these in-person meetings, which may help them better understand the implications of current earnings signals for future earnings. |
| Keywords | Private communications, sell-side analysts, taxis, private information, earnings forecasts, stock recommendations, profitability of stock recommendations, earnings announcements, Reg FD |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3920680 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Social Network Structure |
The rise of the Finfluencer
| Authors | Guan |
| Year | 2023 |
| Type | Working Paper |
| 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. |
| Keywords | Meme stocks, retail investors, microstructure, stock markets, securities regulation |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4400042 |
| Tags | Manager / Firm Behavior |
Finfluencers
| Authors | Kakhbod, Kazempour, Livdan, Schuerhoff |
| Year | 2023 |
| Type | Working Paper |
| Abstract | Tweet-level data from a social media platform reveals low average accuracy and high dispersion in the quality of advice by financial influencers, or "finfluencers": 28% of finfluencers are skilled, generating 2.6% monthly abnormal returns, 16% are unskilled, and 56% have negative skill ("antiskill") generating -2.3% monthly abnormal returns. Consistent with homophily shaping finfluencers' social networks, antiskilled finfluencers have more followers and more influence on retail trading than skilled finfluencers. The advice by antiskilled finfluencers creates overly optimistic beliefs most times and persistent swings in followers' beliefs. Consequently, finfluencers cause excessive trading and inefficient prices such that a contrarian strategy yields 1.2% monthly out-of-sample performance |
| Keywords | Finfluencers, social media, mixture modeling, retail traders, homophily, belief bias |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4428232 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes |
The impact of social media influencers on the financial market performance of firms
| Authors | Zhang, Keasey, Lambrinoudakis, Mascia |
| Year | 2023 |
| Type | Working Paper |
| Abstract | A key development in social media has been the remarkable growth of influencers and their increasing use by firms to manage their online presence and image, and to promote their products. Despite the huge growth of influencers and their use by firms, there is a lack of analysis of social media influencers and their impact on the financial market performance of firms. Anecdotal evidence suggests mega influencers are able to affect the stock prices of firms via social media. We ask whether the effect on stock prices identified in anecdotal evidence is generalizable to all mega influencers and other financial market characteristics of firms. After developing hypotheses from the Noise Trader model and using a hand collected dataset of more than 11,000,000 mega influencer posts on Instagram (2012-2019), we find that mega influencers affect investors' attention, volatility, trading volume and, through extreme sentiment posts, stock returns. The effect on returns is, however, very short lived. Companies need to be aware of these stock market consequences if they intend to use influencers for external image purposes and/or product promotion. |
| Keywords | Influencers, mega influencers, investors, sentiment, firms, financial market performance |
| URL | https://business.leeds.ac.uk/departments-accounting-finance/staff/71/dr-costas-lambrinoudakis |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Propagation of Noise / Undesirable Outcomes |
Using social media to identify the effects of congressional viewpoints on asset prices
| Authors | Bianchi, Cram, Kung |
| Year | 2022 |
| Type | Working Paper |
| Abstract | This paper examines the extent to which individual politicians affect asset prices using a high-frequency identification approach. We exploit the regular flow of viewpoints contained in a large volume of tweets from members of US Congress. Congressional tweets targeting individual firms are collected and classified based on their tone. Supportive (critical) tweets increase (decrease) stock prices of the targeted firm in minutes around the tweet. The price response persists for several days, during which analysts revise their forecasts about the firm cash flows. Selected politician tweets linked to legislation affect the stock prices of firms in the same industry as the targeted firm. The timeline of politician viewpoints within a particular bill exhibits surges in relevant news that predict roll call votes months before the signing of the bill. We highlight how the social media accounts of politicians are a valuable source of political news. |
| Keywords | Asset pricing, high-frequency identification, partisanship, social media |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3846121&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
Social media and short sellers
| Authors | Cai, McLean, Zhang, Zhao |
| Year | 2022 |
| Type | Working Paper |
| Abstract | We ask how social media impacts the role of short sellers in financial markets. We find some evidence consistent with manipulation. Prior to high short interest, a stock's social media tone is abnormally positive, but its traditional media tone is not. Once highly shorted, social media tone flips and is abnormally negative. Using the firm-by-firm introduction and temporary suspension of short selling in China as natural experiments, we find that both the volatility of social media tone and the number of posts increase when a firm becomes shortable, and then decrease when shorting was suspended. Highly shorted firms with pump-and-dump social media patterns also have pump-and-dump stock return patterns and abnormally high trading volume. Manipulative social media tone is more likely when there are more posts from active social media users, who are perhaps better able to influence other users. Our findings are consistent with the idea that social networks and social media can enable manipulation. |
| Keywords | Short selling, social media, manipulation, arbitrage |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3907480&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Media and Textual Analysis | Social Network Structure |
Do hedge funds strategically misreport their holdings? Evidence from 13F restatements
| Authors | Cao, Da, Jiang, Yang |
| Year | 2022 |
| Type | Working Paper |
| Abstract | Hedge funds can subsequently amend their originally reported 13F quarterly holdings using restatements. We conduct the first systematic analysis of such filings, which are as common as confidential filings (used by funds to delay holdings disclosures), but affect four times as many stocks. Restated holdings are associated with significant abnormal returns, suggesting that some original holdings are strategically misreported to hide fundsâ trading intentions. We construct a return gap measure to gauge the value added by such restatements and find that it predicts future fund performance. Finally, commonly used databases such as Thomson Reuters do not fully adjust for restatements. |
| Keywords | Strategic disclosure, hedge funds, ownership disclosure, 13F holdings, restatement, fund skill |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3907560 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior |
Epidemiological expectations
| Authors | Carroll, Wang |
| Year | 2022 |
| Type | Working Paper | Literature Review Paper |
| Abstract | 'Epidemiological' models of belief formation put social interactions at their core; such models are widely used by scholars who are not economists to study the dynamics of beliefs in populations. We survey the literature in which economists attempting to model the consequences of beliefs about the future -'expectations'- have employed a full-fledged epidemiological approach to explore an economic question. We draw connections to related work on 'contagion,' narrative economics, news/rumor spreading, and the spread of internet memes. A main theme of the paper is that a number of independent developments have recently converged to make epidemiological expectations ('EE') modeling more feasible and appealing than in the past. |
| Keywords | Economic expectations, epidemiological expectations, social interactions, social dynamics, information diffusion, economic narratives |
| URL | https://www.nber.org/papers/w30605?utm_campaign=ntwh&utm_medium=email&utm_source=ntwg4 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Consumer Decisions | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases | Theory |
Can social media inform corporate decisions? Evidence from merger withdrawals
| Authors | Cookson, Niessner, Schiller |
| Year | 2022 |
| Type | Working Paper |
| Abstract | This paper examines how social media informs corporate decisions by studying the decision of firm management to withdraw an announced merger. A standard deviation decline in abnormal social media sentiment following a merger announcement predicts a 0.64 percentage point increase in the likelihood of merger withdrawal (16.6% of the baseline rate). The informativeness of social media for merger withdrawals is not explained by abnormal price reactions or news sentiment. Consistent with learning from external information, we find that the social media signal is more informative after a firm adopts a corporate Twitter account, which offers a conduit for listening to investor feedback. In addition, most of the informativeness is driven by investors who reference fundamental information, not price trends, and is driven by longer tweets that likely contain investment analysis. The social media signal is also more informative for complex mergers in which analyst conference calls take a negative tone, driven by the Q&A portion of the call. Overall, these findings imply that social media is not a sideshow, but an important aspect of firm information environment. |
| Keywords | Social media, FinTech, feedback effects, capital allocation, M&A |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4059633 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Media and Textual Analysis |
Strategic learning and corporate investment
| Authors | Decaire, Wittry |
| Year | 2022 |
| Type | Working Paper |
| Abstract | We show that firms anticipate information spillover from peers' investment decisions and delay project exercise to learn from them. While this information improves project selection, the cost of waiting erodes these gains. To establish causality, we exploit local exogenous variation from the 1800s that shapes the number of peers that a firm can learn from today. The effect is most salient when information is scarce, costs of waiting are low, projects have low expected profitability, and the source information is more relevant. Finally, the anticipation of spillovers dampens aggregate investment, suggesting a role for this mechanism in macro-investment models. |
| Keywords | Real options, strategic interactions, learning, peer behavior, investment, historical data |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3923811 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior |
Trust in crowdfunding: Experimental evidence from a fundraising campaign
| Authors | Diep-Nguyen, Yang |
| Year | 2022 |
| Type | Working Paper |
| Abstract | Despite the importance of trust in determining economic outcomes, little is known about what facilitates or hinders interpersonal trust. Using a randomized field experiment of a fundraising campaign, we examine the role of trust and the determinants of perceived trustworthiness in the context of crowdfunding. The key feature of the experiment involves randomized rotations of the campaign design, which differ in the profile photo, details of campaign description, and the update status. The perceived trustworthiness of these rotations is then independently judged by survey participants. We find that while posting updates significantly increases perceived trustworthiness of the campaign and the funds raised, having a more detailed description has little effect. Our follow-up survey reveals that the differential effects are mostly driven by information salience. Interestingly, displaying a white or male profile photo improves the trustworthiness score and generates a higher contribution level, which can be explained by white participants(and donors) and male participants (and donors) preferences. Finally, we find that effects of campaign updates and the profile photo disappear when donors are directly connected to the fundraising team, highlighting the authentication and trust-transmission role of social networks. |
| Keywords | Trust, trustworthiness, crowdfunding, donations |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3972418&dgcid=ejournal_htmlemail_behavioral:experimental:economics:ejournal_abstractlink |
| Tags | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Network Structure | Theory |
Should retail investors listen to social media analysts? Evidence from text-implied beliefs
| Authors | Dim |
| Year | 2022 |
| Type | Working Paper |
| Abstract | This paper uses machine learning to infer nonprofessional social media investment analysts' (SMAs) beliefs from their opinions on individual stocks. SMAs' average beliefs predict future abnormal returns and earnings surprises. However, there exists substantial heterogeneity in SMAs' ability to form beliefs that yield investment value. Some 13% high-skilled SMAs form beliefs that yield a sizeable one-week three-factor alpha of 61 bps, while the remaining 87% low-skilled SMAs generate only 6 bps. Firm and industry specializations are the most distinctive characteristics of high-skilled SMAs. When forming beliefs, SMAs extrapolate from past returns and herd on the consensus view of their peers. However, these seemingly behavioral biases do not result in systematically wrong beliefs. |
| Keywords | Nonprofessional analysts, belief formation, investor skill, market efficiency, herding, extrapolation, machine learning, natural language processing |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3813252 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Social Network Structure |
Labor reactions to credit deterioration: Evidence from LinkedIn activity
| Authors | Gortmaker, Jeffers, Lee |
| Year | 2022 |
| Type | Working Paper |
| Abstract | We analyze worker reactions to firms' credit deterioration. Using weekly anonymized networking activity on LinkedIn, we show workers initiate more connections immediately following a negative credit event, even at firms far from bankruptcy. Our results suggest that workers are driven by concerns about both unemployment and future prospects at their firm. Heightened networking activity is associated with contemporaneous and future departures, especially at highly-rated firms. Other negative events like missed earnings and equity sell recommendations do not trigger similar reactions. Overall, our results indicate that the latent build-up of connections triggered by credit deterioration represents a source of fragility for firms. |
| Keywords | Network formation, credit deterioration, labor & finance, financial distress, labor fragility |
| URL | https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=3456285 |
| Tags | Archival Empirical | Media and Textual Analysis | Social Network Structure |
Word-of-mouth communication and financial decision making
| Authors | Hwang |
| Year | 2022 |
| Type | Working Paper | Literature Review Paper |
| Abstract | I review the empirical literature on word of mouth (WOM) among investors. I begin with an outline of the empirical challenges that WOM research faces and possible strategies to overcome those challenges. I then discuss recent studies on WOM among retail and institutional investors. The research to date provides compelling evidence that WOM importantly determines investment decisions. On balance, the information transmitted through WOM does not appear to help investors make better investment decisions. I explore possible reasons. I also discuss potential asset pricing implications, the emergence of social technologies, and possible avenues for future research. |
| Keywords | Social asset pricing, social finance, investor psychology, investor behavior, asset prices |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4118285 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases |
The impact of joint versus separate prediction mode on forecasting accuracy
| Authors | Imas, Jung, Saccardo, Vosgerau |
| Year | 2022 |
| Type | Working Paper |
| Abstract | Forecasters predicting how people change their behavior in response to a treatment or intervention often consider a set of alternatives. In contrast, those who are treated are typically exposed to only one of the treatment alternatives. For example, managers selecting a wage schedule consider a set of alternative wages while employees are hired at a given rate. We show that forecasts made in joint-prediction mode - which considers a set of alternatives -generate predictions that expect substantially larger behavioral responses than those made in separate-prediction mode - which considers the response to only one treatment realization in isolation. Results show the latter to be more accurate in matching people's actual responses to interventions and treatment changes. We present applications to managerial decision-making and forecasting of scientific results. |
| Keywords | Forecasting accuracy, joint vs. separate evaluation, behavioral economics |
| URL | https://www.nber.org/papers/w30611?utm_campaign=ntwh&utm_medium=email&utm_source=ntwg4 |
| Tags | Experimental / Survey-Based Empirical | Manager / Firm Behavior |
The risk and return of impact investing funds
| Authors | Jeffers, Lyu, Posenau |
| Year | 2022 |
| Type | Working Paper |
| Abstract | We provide the first analysis of the risk exposure and risk-adjusted performance of impact investing funds, private market funds with dual financial and social goals. We introduce a dataset of impact fund cash flows and exploit distortions in VC performance measures to characterize risk profiles. Impact funds have a lower market beta than comparable private market strategies. Accounting for market risk exposure, impact funds underperform the public market, though not more so than comparable strategies. Adding a public sustainability factor to our pricing model helps explain impact returns, though the correlation of fund cash flows with this factor is not necessarily positive. |
| Keywords | Impact investing, private equity, venture capital |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3949530 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Theory |
Political ideology and international capital allocation
| Authors | Kempf, Luo, Schafer, Tsoutsoura |
| Year | 2022 |
| Type | Working Paper |
| Abstract | Does investors' political ideology shape international capital allocation? We provide evidence from two settings-syndicated corporate loans and equity mutual funds-to show ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Ideological alignment on both economic and social issues plays a role. Our empirical strategy ensures direct economic effects of foreign elections or government ties between countries are not driving the result. Ideological distance between countries also explains variation in bilateral investment. Combined, our findings imply ideological alignment is an important, omitted factor in models of international capital allocation. |
| Keywords | Capital flows, syndicated loans, mutual funds, political ideology, elections |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3904077 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior |
Differential treatment and local information advantage: Revelations from translation differences
| Authors | Lang, Stice-Lawrence, Wong, Wong |
| Year | 2022 |
| Type | Working Paper |
| Abstract | We develop an empirical proxy for the differential treatment of local and foreign investors using translation differences in public disclosure as observable indicators that reflect non-public interactions. After confirming the validity of our proxy, we show that differential treatment results in significant information asymmetry between local and foreign investors as measured through stock illiquidity, and analysis of analyst forecast errors suggests that this information asymmetry is created by firms providing foreign market participants with lower quality information. Firms respond to strategic incentives for differential treatment relating to government subsidies and capital raising, and thus differential treatment is not just a byproduct of resource constraints. Our results highlight the role of differential treatment as one driver of local information advantage. |
| Keywords | Differential treatment, local information advantage, translation differences, financial disclosure, information asymmetry, textual analysis, globalization |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3956105&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Media and Textual Analysis |