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News Diffusion in Social Networks and Stock Market Reactions

Author

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  • David Hirshleifer
  • Lin Peng
  • Qiguang Wang

Abstract

We study how the social transmission of public news influences investors’ beliefs and securities markets. Using data on social networks, we find that earnings announcements from firms in higher-centrality counties generate stronger immediate price, volatility, and trading volume reactions. Post-announcement, such firms experience weaker price drift and faster volatility decay but higher and more persistent volume. These findings indicate that greater social connectedness promotes timely incorporation of news into prices, but also opinion divergence and excessive trading. We propose the social churning hypothesis, which is confirmed using granular data from StockTwits messages and household trading records.

Suggested Citation

  • David Hirshleifer & Lin Peng & Qiguang Wang, 2023. "News Diffusion in Social Networks and Stock Market Reactions," NBER Working Papers 30860, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30860
    Note: AP
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    Cited by:

    1. Thomas Graeber & Christopher Roth & Constantin Schesch, 2024. "Explanations," ECONtribute Discussion Papers Series 291, University of Bonn and University of Cologne, Germany.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G4 - Financial Economics - - Behavioral Finance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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