News Diffusion in Social Networks and Stock Market Reactions
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.
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