Social Media Sentiment and Stock Return

Abstract

Technology advancements increase people’s engagements in social media and make a great framework for analyzing investors’ behavior. Social media sentiment is the overall mood of investors shared on social media platforms and can affect readers’ investment decisions and the stock return. During the literature review, we found inconsistent empirical results for the relationship between social media sentiment and stock return. In addition, this relationship’s moderators must be theoretically and empirically analyzed. Using a panel regression over investors’ sentiment extracted from the two biggest financial and non-financial social media platforms (StockTwits and Twitter), we have checked if social media sentiment can predict S&P500 stock return and if the sentiment effect varies among different firm characteristics and market conditions. The findings suggest that positive (negative) sentiment has a significantly positive (negative) effect on stock return, while negative sentiment has a stronger effect. In addition, the sentiment effect is stronger among the firms that are smaller, high volatile, and has higher attention on social media platforms, specifically during bearish markets. Our findings indicate that social media sentiment is a risk factor separated from other previously studied risk factors.