| 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. |