Negative peer disclosure
| Authors | Cao, Fang, Lei |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | This paper provides first evidence of negative peer disclosure (NPD), an emerging corporate strategy to publicize adverse news of industry peers on social media. Consistent with NPDs being implicit positive self-disclosures, disclosing firms experience a two-day abnormal return of 1.6%-1.7% over the market and industry. Further exploring the benefits and costs of such disclosures, we find that NPD propensity increases with the degree of product market rivalry and technology proximity and disclosing firms outperform nondisclosing peers in the product markets in the year following NPDs. These results rationalize peer disclosure and extend the scope of the literature beyond self-disclosure. |
| Keywords | Peer disclosure, spillover, product market rivalry, technology proximity, social media |
| URL | https://www.sciencedirect.com/science/article/pii/S0304405X21000404 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Media and Textual Analysis |
Listening in on investors' thoughts and conversations
| Authors | Chen, Hwang |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | A large literature in neuroscience and social psychology shows that humans are wired to be meticulous about how they are perceived by others. In this paper, we propose that impression management considerations can also end up guiding the content that investors transmit via word of mouth and inadvertently lead to the propagation of noise. We analyze server log data from one of the largest investment-related websites in the United States. Consistent with our proposition, we find that investors more frequently share articles that are more suitable for impression management despite such articles less accurately predicting returns. Additional analyses suggest that high levels of sharing can lead to overpricing. |
| Keywords | Social interactions, Social transmission bias, Asset prices |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0304405X21003810 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Transmission Biases |
Tesla: is now the time to invest? An examination of Tesla, social media, and its effect on stock
| Authors | Coiro |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Tesla is an American electric vehicle and clean energy company. They are based in Palo Alto, California and their product base consists of electric cars, battery energy storage, solar panels, and solar roof tiles. On an average day in 2021, Tesla stock sells for $700/share. We will review historical Tesla data and examine whether this particular stock is worth the investment? In addition to historical data, this research reviews the effect of traditional news and social media on human behavior. Exploring social media analytics, investor sentiment and behavior in hopes to gauge how these factors can impact Tesla and whether this should be taken into consideration prior to the investment. |
| Keywords | Tesla, Stock Market, Investment, Social Media, Investor, Human Behavior, Clean Energy, Solar, Electric Cars |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3908275&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Media and Textual Analysis |
Extrapolative beliefs in the cross-section: What can we learn from the crowds?
| Authors | Da, Huang, Jin |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | Using novel data from a crowdsourcing platform for ranking stocks, we investigate how investors form expectations about stock returns over the next week. We find that investors extrapolate from stocks' recent past returns, with more weight on more recent returns, especially when recent returns are negative, salient, or from a dispersed cross-section. Such extrapolative beliefs are stronger among nonprofessionals and large stocks. Moreover, consensus rankings negatively predict returns over the next week, more so among stocks with low institutional ownership and a high degree of extrapolation. A trading strategy that sorts stocks on investor beliefs generates an economically significant profit. |
| Keywords | Return extrapolation, beliefs in the cross-section, expectation formation |
| URL | https://www.sciencedirect.com/science/article/pii/S0304405X20302786 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
Similarity breeds trust: Political homophily and CEO-board communication
| Authors | Dasgupta, Guo, Ren, Shu |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We find evidence suggesting that similarity of political views between the CEO and independent directors ("political homophily") encourages the CEO to share adverse information with the board. Firms with higher political homophily have lower stock price crash risk, are more likely to divest previously acquired assets with poor announcement returns, and are more likely to recognize losses in asset value. Furthermore, the effect of political homophily is complemented by strong shareholder governance which prevents friendly board from insulating the CEO in the case of ex post negative outcomes. Our identification utilizes the exogenous variation in political beliefs associated with the entry of a conservative television network in local markets. Our findings show that a friendly board facilitates CEO-board communication which is crucial for the board to function effectively in its advisory role. |
| Keywords | Friendly board, CEO-board communication, political homophily, crash risk, corporate governance |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3966173&dgcid=ejournal_htmlemail_behavioral:experimental:finance:(editor%27s:choice):ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Social Network Structure |
Media attention and stock categorization: an examination of stocks hyped to benefit from the Olympics
| Authors | Dechow, Lawrence, Luo, Stamenov |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We investigate whether there are temporary valuation impacts on stocks that media outlets list as involved in a major sporting event (the summer Olympics). We examine five summer Olympics and identify stocks that media outlets hype as benefiting from the Olympics (Olympic stocks). We find that Olympic stocks exhibit increases in comovement of returns after the announcement of the winning bid and declines in comovements after the games are played, consistent with the Olympics being used by investors as a category for investment. Furthermore, Olympic stock returns outperform their matched counterparts over this time period. If the comovement and valuation benefits are due to changes in underlying economics then we expect to observe corresponding increases in comovements of fundamentals and improvements in profitability. However, we find no observable changes in fundamental comovements or profitability. Consistent with investor sentiment driving the categorization, we find that Olympic firms with a greater retail investor presence have stronger comovements effects; and trading volume and volatility are abnormally high for Olympic firms on days where media outlets have stories linking the firm to the Olympic games. To clarify event-based categorization occurs in other settings where media outlets classify stocks for investment, we show comovement increases for stocks classified as "Stay-at-Home" by analysts and the media and "Meme"Â by retail investors on the Reddit social media platform. |
| Keywords | Sports events, media, Olympics, Olympic stocks, retail investors, valuation, fundamentals, comovement, categorization, investor sentiment, investor recognition, common factor, Stay-at-Home, Meme. |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3881333 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Media and Textual Analysis |
A theory of financial media
| Authors | Goldman, Martel, Schneemeier |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We present a model of media coverage of corporate announcements. Firms strategically use the media to communicate corporate announcements to a group of traders who observe announcements not directly but through media reports. Journalists strategically select which announcements to report to readers. Media coverage inadvertently incentivizes firms to manipulate the underlying announcements. In equilibrium, media coverage is tilted towards less manipulated negative news. The presence of financial journalists leads to more manipulation but makes stock prices more informative on average. We provide additional predictions regarding the media's impact on the quality of firm announcements and stock prices. |
| Keywords | financial journalism, disclosure, manipulation, price quality |
| URL | https://doi.org/10.1016/j.jfineco.2021.06.038 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Media and Textual Analysis | Theory |
Social transmission bias and investor behavior
| Authors | Han, Hirshleifer, Walden |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We offer a new social approach to investment decision making and asset prices. Investors discuss their strategies and convert others to their strategies with a probability that increases in investment returns. The conversion rate is shown to be convex in realized returns. Unconditionally, active strategies (e.g., high variance and skewness) dominate, although investors have no inherent preference for these characteristics. The model has strong predictions for how the adoption of active strategies depends on investors's social networks. In contrast with nonsocial approaches, sociability, self-enhancing transmission, and other features of the communication process determine the popularity and pricing of active investment strategies. |
| URL | https://doi.org/10.1017/S0022109021000077 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Social Transmission Biases | Theory |
Social networks and market reactions to earnings news
| Authors | Hirshleifer, Peng, Wang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using social network data from Facebook, we show that earnings announcements made by firms located in counties with higher investor social network centrality attract more attention from both retail and institutional investors. For such firms, the immediate price and volume reactions to earnings announcements are stronger, and post-announcement drift is weaker. Such firms have lower post-announcement persistence of return volatility but higher persistence in investor attention and trading volume. These effects are stronger for small firms, firms with poor analyst and media coverage, and for stocks with salient returns. Our evidence suggests a dual role of social networks-they facilitate the incorporation of public information into prices, but also trigger persistent excessive trading. |
| Keywords | Social networks, investor attention, earnings announcement, information diffusion, disagreement |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3824022 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Media and Textual Analysis | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
The rise of Reddit: how social media affects retail investors and short-sellersâ roles in price discovery
| Authors | Hu, Jones, Zhang, Zhang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using 2020-2021 data from social media platform Reddit, we examine connections among stock prices, retail trading, short-selling and social media activity. Higher Reddit traffic, more positive tone, and higher Reddit connectedness predict higher returns, greater and more positive retail order flow, and lower shorting flows the next day. Social media information content is distinct from retail order and shorting information content. Higher Reddit traffic, more positive tone, more disagreement and higher Reddit connectedness increase shorting flowâs information content. Robinhood 50 stocks are more affected by social media activity, with stronger links among retail order flow, shorting flows and future returns. |
| Keywords | social media, short selling, intraday trading, retail investors |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3807655&dgcid=ejournal_htmlemail_behavioral:experimental:finance:(editor%27s:choice):ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Media and Textual Analysis | Social Network Structure |
The rise of Reddit: How social media affects retail investors and short-sellers' roles in price discovery
| Authors | Hu, Jones, Zhang, Zhang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using 2020-2021 data from social media platform Reddit, we examine connections among stock prices, retail trading, short-selling and social media activity. Higher Reddit traffic, more positive tone, and higher Reddit connectedness predict higher returns, greater and more positive retail order flow, and lower shorting flows the next day. Social media information content is distinct from retail order and shorting information content. Higher Reddit traffic, more positive tone, more disagreement and higher Reddit connectedness increase shorting flow's information content. Robinhood 50 stocks are more affected by social media activity, with stronger links among retail order flow, shorting flows and future returns. |
| Keywords | Social media, short selling, intraday trading, retail investors |
| URL | https://ssrn.com/abstract=3807655 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
Partisan professionals: Evidence from credit rating analysts
| Authors | Kempf, Tsoutsoura |
| Journal | Journal of Finance |
| Year | 2021 |
| Type | Published Paper |
| Abstract | Partisan perception affects the actions of professionals in the financial sector. Linking credit rating analysts to party affiliations from voter records, we show that analysts not affiliated with the U.S. president's party downward-adjust corporate credit ratings more frequently. Since we compare analysts with different party affiliations covering the same firm in the same quarter, differences in firm fundamentals cannot explain the results. We also find a sharp divergence in the rating actions of Democratic and Republican analysts around the 2016 presidential election. Our results show that analysts' partisan perception has price effects and may influence firms' investment policies. |
| Keywords | Analysts, credit ratings, partisanship, polarization, belief disagreement, Trump, elections |
| URL | https://doi.org/10.1111/jofi.13083 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical |
Social proximity to capital: Implications for investors and firms
| Authors | Kuchler, Li, Peng, Stroebel, Zhou |
| Journal | Review of Financial Studies |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We show that institutional investors are more likely to invest in firms from regions to which they have stronger social ties but find no evidence that these investments earn a differential return. Firms in regions with stronger social ties to locations with many institutional investors have higher valuations and liquidity. These effects are largest for small firms with little analyst coverage, suggesting that the investors' behavior is explained by their increased awareness of firms in socially proximate locations. Our results highlight that the social structure of regions affects firms' access to capital and contributes to geographic differences in economic outcomes. |
| Keywords | Social networks, Social Connectedness Index, institutional investors |
| URL | https://doi.org/10.1093/rfs/hhab111 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Social Network Structure |
Social finance
| Authors | Kuchler, Stroebel |
| Journal | Annual Review of Financial Economics |
| Year | 2021 |
| Type | Published Paper | Literature Review Paper |
| Abstract | We review an empirical literature that studies the role of social interactions in driving economic and financial decision-making. We first summarize recent work that documents an important role of social interactions in explaining household decisions in housing and mortgage markets. This evidence shows, for example, that there are large peer effects in mortgage refinancing decisions and that individuals's beliefs about the attractiveness of housing market investments are affected by the recent house price experiences of their friends. We also summarize recent work showing that social interactions affect the stock market investments of both retail and professional investors as well as household financial decisions such as retirement savings, borrowing, and default. Along the way, we describe a number of easily accessible recent data sets for the study of social interactions in finance, including the Social Connectedness Index, which measures the frequency of Facebook friendship links across geographies. We conclude by outlining several promising directions for further research in the field of social finance. |
| Keywords | Social networks, peer effects, financial decision-making, social dynamics, belief contagion |
| URL | https://doi.org/10.1146/annurev-financial-101320-062446 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |
The trading response of individual investors to local bankruptcies
| Authors | Laudenbach, Loos, Pirschel, Wohlfart |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We examine how adverse local experiences that are uninformative of future returns affect households' investment behavior in the short term. Using data from a German online brokerage and a survey we show that retail investors sharply reduce risk taking in response to nearby firm bankruptcies. Adjustments in risk taking occur through immediate and transitory increases in trading, and seem to work through more pessimistic expectations about aggregate stock returns and increased risk aversion. Changes in background risks or wealth effects cannot explain our findings. Extrapolation from local experiences to aggregate expectations is inconsistent with optimal use of full or limited information. |
| Keywords | Individual investors, risk-taking, trading, experiences |
| URL | https://doi.org/10.1016/j.jfineco.2021.06.033 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
CEO social media presence and insider trading
| Authors | Li, Liang, Tang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Prior research finds that online social media usage may lower self-control and encourage indulgent behavior in laboratory subjects. We find that corporate CEOs show similar tendencies: CEOs with online social media presence are more likely to succumb to lower self-control and abuse their information advantage to profit from unethical insider trades. Specifically, CEOs' social media presence strongly predicts their insider trading activity in terms of incidence, intensity (amount and frequency), and profitability. We further find that the effect is driven by insider buys (not by sells) and is more pronounced for opportunistic buys which tend to contain more material non-public information. |
| Keywords | Insider trading, social media, CEO misconduct, business ethics |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3909886&dgcid=ejournal_htmlemail_behavioral:experimental:finance:(editor%27s:choice):ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
Economic narratives and market outcomes: A semi-supervised topic modeling approach
| Authors | Mai, Pukthuanthong |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We employ sLDA to extract the narratives discussed by Shiller (2019) from 7 million NYT articles over 150 years. The estimation addresses look-ahead bias and changes in semantics. Panic and the narrative index positively predict market return and negatively predict volatility. Panic presents time-varying risk aversion. The narrative predictability increases recently at both market and portfolio and monthly and daily intervals. The narrative index constructed from 2 million WSJ articles over 130 years retains its predictive power, but Stock Bubble emerges as a negative market predictor. Media customizes their narratives to their readers, having a diverse effect on the market. |
| Keywords | Narratives, LDA, topic modeling, predictability, textual analysis, history |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3990324 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
Game stops not yet. Investors' behavior in the post-pandemic times
| Authors | Milovidov |
| Year | 2021 |
| Type | Working Paper | Literature Review Paper |
| Abstract | The first twenty years of the 21st century were a period of transformation and change in the development models of the financial market. One of the strongest in the history world financial crises of 2007-2008 ended the post-deregulation model. Transition to the new financial market model turned out to be largely unpredictable, complex, and spontaneous, unlike the previous periods, without the purposeful participation of state regulators. An objective but random reason for this course of events was the COVID-19 pandemic. Pandemic has distorted the effect of the loose monetary policy, which caused building the grounds for a new financial market model. The post-pandemic model of the financial market is still in the early stages of formation, and it is too early to talk about all its properties and elements. However, as seen from current events and processes, the essential factor of the new financial market model formation is a gamification of investors' behavior. The author believes this behavioral model requires much more attention of researches than that in nowadays scientific literature. |
| Keywords | Financial market, investors' behavior, household finance, monetary policy, personal savings, post-pandemic, emotional communities, wallstreetbets, attention-induced trading, gamification |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3905795 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Social Network Structure |
Partisan return gap: The polarized stock market in the time of a pandemic
| Authors | Sheng, Sun, Wang |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Using two proxies for investors' political affiliation, we document sharp differences in stock returns between firms likely dominated by Democratic investors (blue stocks) and those dominated by Republican investors (red stocks) during the COVID pandemic. Red stocks have 20 basis points higher risk-adjusted returns than blue stocks on COVID news days (Partisan Return Gap). Lockdown policies, COVID cases, industry and firm fundamentals only explain at most 25% of the return gap. Polarized political beliefs about COVID, revealed through people's social distancing behaviors and their Stock-Twits, contribute to about 40% of the return gap beyond the fundamental channel. Our paper provides partisanship as a novel aspect in understanding abnormal stock returns during the pandemic. |
| Keywords | Partisanship, stock returns, pandemic, COVID-19, political polarization, political finance, social finance |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3809575 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Social Network Structure |
CEO partisan bias and management earnings forecast bias
| Authors | Stuart, Wang, Willis |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Political science research finds that individuals exhibit partisan bias, which results in unduly favorable economic expectations when their partisanship aligns with that of the US president. We examine whether partisan bias is present in management earnings forecasts, where CEOs have strong incentives to provide high-quality forecasts. We find that firms with CEOs whose partisanship aligns with that of the US president issue more optimistically biased management earnings forecasts than CEOs whose partisanship is unknown or not aligned with that of the US president. Our results suggest that CEOs fall prey to partisan bias, which results in suboptimal forecasting behavior. In cross-sectional analyses, we find that this forecast over-optimism is attenuated when CEOs are of higher ability. Additionally, we find that investors fail to discount the news in forecasts issued by CEOs whose partisanship aligns with that of the US president and that post-forecast abnormal returns are lower for these firms. |
| Keywords | Political bias, cognitive bias, management earnings forecasts, voluntary disclosure |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2902088 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior |