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 |
Investor disagreement, disclosure processing costs, and trading volume evidence from social media
| Authors | Booker, Curtis, Richardson |
| Journal | The Accounting Review |
| Year | 2023 |
| Type | Published Paper |
| Abstract | We use posts on the investor-focused StockTwits social media network to generate new insights regarding investor disagreement, disclosure processing costs, and trading volume around earnings announcements. Using social media-based measures of disagreement, we find that both preannouncement disagreement and increases in disagreement around an earnings announcement are positively associated with trading volume. Drawing upon the disclosure processing costs literature, we provide evidence that the effects of disagreement increase when disclosure processing costs are lower. Our social media measures of disagreement remain significant after including traditional analyst earnings estimate measures of disagreement in the model. Our study provides new evidence on the importance of disclosure processing costs and is consistent with lower disclosure processing costs amplifying both the resolution of preannouncement disagreement and new disagreement about earnings information. |
| Keywords | Disagreement, trading volume, social media, disclosure processing costs |
| URL | https://publications.aaahq.org/accounting-review/article-abstract/98/1/109/386/Investor-Disagreement-Disclosure-Processing-Costs?redirectedFrom=fulltext |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency |
Earnings virality
| Authors | Campbell, Drake, Thornock, Twedt |
| Journal | Journal of Accounting and Economics |
| Year | 2023 |
| Type | Published Paper |
| Abstract | We examine the determinants and market consequences associated with earnings announcements going viral on social media, a phenomenon we label "earnings virality." Using a comprehensive panel of historical Twitter data, we find that the typical earnings announcement receives relatively little social media coverage, but others go viral on social media, quickly reaching the feeds of millions of people. We find that viral earnings announcements generally have Twitter content that is more extreme in tone and contains less unique content. Further, earnings virality is positively associated with revenue surprises, investor recognition, retail investor ownership, and retail investor trading around the announcement. Earnings virality appears to be detrimental to markets, as it coincides with lower market liquidity and slower price formation. Overall, our evidence suggests that user-driven dissemination through social media platforms, when amplified and taken to extreme levels, may be harmful to markets. |
| Keywords | Earnings virality, viral, social media, earnings announcements |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0165410122000404?via%3Dihub |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency |
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 |
Active trading and (poor) performance: The social transmission channel
| Authors | Escobar, Pedraza |
| Journal | Journal of Financial Economics |
| Year | 2023 |
| Type | Published Paper |
| Abstract | We study the influence from social interactions on equity trading. Using unique data on stock transactions, we exploit the quasi-random assignment of students to classrooms in a financial training program to identify how peer experience affects investor behavior. We find that individuals react more to peer gains than to peer losses. Students enrolled in courses where peers have positive outcomes: (i) are more likely to start trading, (ii) purchase similar stocks as their classmates, and (iii) are disproportionally attracted to stocks with extreme returns. These stocks have low subsequent returns, and new investors reacting to peer gains underperform other investors. |
| Keywords | Stock market participation, peer effects, active trading, lottery stocks, social finance |
| URL | https://www.sciencedirect.com/science/article/pii/S0304405X23001277 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical |
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 |
Understanding investor interaction with firm information: A discussion of Lee and Zhong (2022)
| Authors | Blankespoor |
| Journal | Journal of Accounting and Economics |
| Year | 2022 |
| Type | Published Paper | Literature Review Paper |
| Abstract | Investors are central to the incorporation of firm information in capital markets, yet it is challenging to observe the particular information they use and struggle with. Lee and Zhong (2022) use online investor interactions with Chinese public firms to document evidence that investors face significant processing costs. They find that when investor interactions occur, capital markets behave as if the information environment has improved, with increased trading activity, liquidity, and timely pricing of the quarter's earnings in returns. My discussion highlights the contributions of Lee and Zhong's findings to the processing cost, retail investor, and investor interactions literatures. I also describe empirical challenges faced by this and similar studies. I encourage using the details of interactions to disentangle the nature of processing costs and to increase support for causal conclusions more generally. Finally, I note several topics related to investor inter- action that would benefit from further research. |
| Keywords | Disclosure, investor interaction, information processing costs, technology |
| URL | https://www.sciencedirect.com/science/article/pii/S0165410122000465 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency |
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 |
Listening in on investors' thoughts and conversations
| Authors | Chen, Hwang |
| Journal | Journal of Financial Economics |
| Year | 2022 |
| 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?via%3Dihub |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Social Transmission Biases |
The ex ante likelihood of bubbles
| Authors | Chinco |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | The limits of arbitrage explain how a speculative bubble is sustained; they do not explain how likely one is to occur. To do that, you need a theory about the thing that sporadically causes arbitrageur constraints to bind. I propose a first such theory, which is based on social interactions between speculators. The theory says that bubbles should be more likely in assets where increases in past returns make excited-speculators relatively more persuasive to their peers. I empirically verify this ex ante prediction about bubble likelihoods and show that it is robust to some ex post disagreement about bubble definitions. |
| Keywords | Limits to arbitrage, speculative bubbles, social interactions |
| URL | https://pubsonline.informs.org/doi/10.1287/mnsc.2022.4351 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Propagation of Noise / Undesirable Outcomes | Theory |
Echo chambers
| Authors | Cookson, Engelberg, Mullins |
| Journal | The Review of Financial Studies |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We find evidence of selective exposure to confirmatory information among 400,000 users on the investor social network StockTwits. Self-described bulls are five times more likely to follow a user with a bullish view of the same stock than are self-described bears. Consequently, bulls see 62 more bullish messages and 24 fewer bearish messages than bears do over the same 50-day period. These âecho chambersâ exist even among professional investors and are strongest for investors who trade on their beliefs. Finally, beliefs formed in echo chambers are associated with lower ex post returns, more siloing of information, and more trading volume. |
| URL | https://academic.oup.com/rfs/article-abstract/36/2/450/6670640 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Social Transmission Biases |
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 |
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 |
Social media analysts and sell-side analyst research
| Authors | Drake, Moon, Twedt, Warren |
| Journal | Review of Accounting Studies |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We examine how research posted by "social media analysts" (SMAs) - individuals posting equity research online via social media investment platforms - is related to research subsequently produced by professional sell-side equity analysts. Using data from Seeking Alpha, we find that the market reaction to sell-side analyst research is substantially reduced when the analyst research is preceded by the report of an SMA, and that this is particularly true of sell-side analysts' earnings forecasts. We further find that this effect is more pronounced when SMA reports contain more decision-useful language, are produced by SMAs with greater expertise, and relate to firms with greater retail investor ownership. We also provide evidence that the attenuated response to sell-side research is most likely explained by SMA research preempting information in sell-side research and that analysts respond to SMA preemption with bolder and more disaggregated forecasts. Collectively, our results suggest that equity research posted online by SMAs provides investors with information that is similar to but arrives earlier than sell-side equity research, and speak to the connected and evolving roles of information intermediaries in capital markets. |
| Keywords | Social media analyst, sell-side analyst, information intermediaries, equity research |
| URL | https://link.springer.com/article/10.1007/s11142-021-09645-1 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
Democracy and the pricing of initial public offerings around the world
| Authors | Duong, Goyal, Kallinterakis, Veeraraghavan |
| Journal | Journal of Financial Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We find a negative relation between democracy and initial public offering (IPO) underpricing for a sample of 23,050 IPOs across 45 countries. The effect of democracy on underpricing is weaker for IPOs audited by Big 4 auditing firms, backed by venture capital firms, and with better disclosure specificity of use of proceeds. Democracy exerts a larger influence on underpricing for firms with higher agency problems, in countries with weaker institutional quality or shareholder protection, and during periods of high investor sentiment or economic policy uncertainty. Overall, our results highlight the importance of democracy in reducing IPO underpricing around the world. |
| Keywords | Democracy, IPO underpricing, information asymmetry, corporate governance |
| URL | https://doi.org/10.1016/j.jfineco.2021.07.010 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior |
The democratization of investment research and the informativeness of retail investor trading
| Authors | Farrell, Green, Jame, Markov |
| Journal | Journal of Financial Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We study the effects of social media on the informativeness of retail trading. Our identification strategy exploits the editorial delay between report submission and publication on Seeking Alpha, a popular crowdsourced investment research platform. We find the ability of retail order imbalances to predict the cross-section of stock returns and cash-flow news increases sharply in the intraday post-publication window relative to the pre-publication window. The findings are robust to controlling for report tone and stronger for reports authored by more capable contributors. The evidence suggests that recent technology-enabled innovations in how individuals share information help retail investors become better informed. |
| Keywords | Investment research, Seeking alpha, retail investors, informed trading |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0304405X21004050 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Social Network Structure |