Social media as an amplifier of insider trading profits

Yi Li, Wei Zhang, Pengfei Wang and John W. Goodell

Journal of International Financial Markets, Institutions and Money, 2024, vol. 96, issue C

Abstract: Our study investigates the relationship between stock forum posts and insider trading profitability. Using regression analysis, we find a positive relationship between the number of posts on a firm’s stock forum and insider trading profitability, particularly for sales transactions. A difference-in-differences analysis based on the launch of the mobile app for stock forums further confirms these results. This profit-amplifying effect of stock forum posts is likely due to the pervasive noise on social media, as it weakens following the introduction of regulations aimed at cleaning up the internet’s information environment. Additionally, we observe distinctions in post tone around insider trades, with the profit-amplifying effect more pronounced in firms with high information asymmetry, substantial retail holdings, and less foreign ownership. Overall, our study highlights a potential dark side of social media in amplifying insider trading profits, emphasizing the need for regulatory measures.

Keywords: Insider trading; Social media; Information asymmetry; Noise (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:96:y:2024:i:c:s1042443124001252

DOI: 10.1016/j.intfin.2024.102059

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