Social Media and Stock Market Participation

We investigate the effect of social media adoption on stock market participation in the United States. Using plausibly exogenous variation in the early adoption of Twitter across counties, we show that a 10% increase in social media usage is associated with a 2.5% higher rate of stock ownership and an overall increase in stock market wealth. Consistent with the idea that social media can lower the cost of accessing information, we find that Twitter adoption is associated with a decline in the number of financial advisors and has larger effects on stock ownership in counties with lower levels of pre-existing stock market knowledge. Twitter adoption also fuels interest in “meme stocks,†which tend to be more volatile and owned by retail investors. Overall, our results suggest a distinct impact of social media platforms on household portfolio choices that differs from that of other modern information technologies.