Effect of Digitalized Rumor Clarification on Stock Markets

Stock volatility is influenced by the release, dissemination, and acceptance of information. Rumor clarification is expected to reduce asymmetric information and abnormal stock returns by increasing information transparency. However, investors are irrational, and modern behavioral finance studies attribute non-random stock movements to investors’ cognitive and emotional biases. The verification of rumor authenticity may cause fluctuations in investor sentiment, which increases impulsive investing behaviors and stock movements. Due to the widespread and fast accessibility of social media, many electronic information platforms have been established to clarify rumors. It is critical to understand the effects of digitalized rumor clarification on stock markets. In this study, we extracted 12,663 rumor-clarification pairs from 1,804,520 social media posts. We quantified the language used in these messages via sentiment analysis, along with online firm behaviors, to study the effect of clarifications on stock markets. Our findings are as follows: (1) Digitalized rumor-clarification messages affect the abnormal returns of relevant stocks. (2) This influence can be quantified and measured by the emotion polarity of rumor clarification. (3) Firms’ online clarification behaviors, including information disclosure frequency, response time, and wording, have limited to no influence on abnormal returns.