What’s Trending? Stock-Level Investor Sentiment and Returns

Karolina Krystyniak (), Hongqi Liu and Huajing Hu
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Karolina Krystyniak: Faculty of Business and IT, Ontario Tech University, Oshawa, ON L1G 0C5, Canada
Hongqi Liu: Shenzhen Finance Institute and School of Management and Economics, The Chinese University of Hong Kong, Shenzhen 518172, China
Huajing Hu: Robert B. Willumstad School of Business, Adelphi University, Garden City, NY 11530, USA

IJFS, 2025, vol. 13, issue 3, 1-27

Abstract: We study a direct, firm-level measure of investor sentiment derived from social media (BTSS sentiment). While related to firm fundamentals, BTSS sentiment contains a substantial non-fundamental component. We decompose sentiment into fundamental and pure sentiment and show that return predictability and reversal are primarily driven by the latter. Sentiment is persistent and systematic in the short term. High sentiment predicts elevated concurrent returns and subsequent reversal within a year. The effect is strongest in hard-to-value stocks, such as small and young firms, where limits to arbitrage are more binding.

Keywords: investor sentiment; social media; stock returns (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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