News Diffusion in Social Networks and Stock Market Reactions

David Hirshleifer, Lin Peng and Qiguang Wang

No 30860, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how the social transmission of public news influences investors’ beliefs and securities markets. Using data on social networks, we find that earnings announcements from firms in higher-centrality counties generate stronger immediate price, volatility, and trading volume reactions. Post-announcement, such firms experience weaker price drift and faster volatility decay but higher and more persistent volume. These findings indicate that greater social connectedness promotes timely incorporation of news into prices, but also opinion divergence and excessive trading. We propose the social churning hypothesis, which is confirmed using granular data from StockTwits messages and household trading records.

JEL-codes: G11 G12 G14 G4 G41 (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-fmk, nep-mst, nep-net, nep-soc and nep-ure
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