Beyond content: Investors' chatter, interaction and earnings announcement returns

Johannes Gaul and Pascal Schrader

No 25-040, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We study the relationship between investors' social media activity and earnings announcement returns. To distinguish between information contained in peer-to-peer interaction and user-posted content, we analyze conversation networks on Reddit using centrality metrics from network science and classify user sentiment with large language models. We show that pre-announcement sentiment is positively associated with short-term cumulative abnormal returns only if it does not spark pre-announcement controversy. If pre-announcement controversy arises, we document a negative association. Our findings present a more nuanced view on the wisdom of crowds hypothesis, highlighting that peer-to-peer interaction on social media exhibits a pattern of normalization, and thus contains informational value beyond content.

Keywords: Information Processing; Reddit Wallstreet Bets; Wisdom of Crowds; Conversation Networks; Large Language Models; Eigenvector Centrality; High-frequency Data (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-cmp, nep-net and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:327108

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