Article details
Chen, Hailiang, De, Prabuddha, Hu, Yu, Hwang, Byoung-Hyoun (2011). The Customer as Advisor: The Role of Social Media in Financial Markets. Social Science Research Network Working Paper Series.
- Producer: Amateur Analysts
- Consumer/User: Investors
- Medium: Blogs
- Keywords: social media, peer-based advice, financial markets
- Abstract: This paper investigates the extent to which peer-based advice transmitted through social media affects the stock market. We conduct textual analysis of articles published on Seeking Alpha, a popular social-media platform among investors. We find that the views expressed in these articles associate strongly with contemporaneous and subsequent stock returns, and help predict earnings surprises. The social media effect is stronger for articles more closelywidely followed by market participants and for companies held mostly by retail investors, the primary generators and consumers of social-media content. Together, these findings point to the importance of social media as both a source of peer-based advice and a channel through which views become reflected in stock prices.