Working Paper: CEPR ID: DP10470
Authors: Yi Dong; Massimo Massa; Hong Zhang
Abstract: The rise of social media has encouraged guru dreams because of the low entry barrier and highly skewed distribution of public attention that characterize social media. The pursuit of guru status, however, may be achieved through information provision or cheap talk, and competition inherent to social media may incentivize participants to either process better information or express more extreme options. Using a unique dataset of blogs covering S&P 1500 stocks over the 2006-2011 period, we find evidence that social media can be informative about future stock returns but that competition distorts opinions rather than encouraging participants to process better information. In particular, competition induces exaggerated negative tones in blogs, which is unrelated to information. Our results suggest that social media may provide mixed incentives for its participants in terms of information efficiency.
Keywords: blogs; competition; information provision; social media
JEL Codes: G30; M41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| blog tone difference (Y60) | future abnormal stock returns (G17) |
| competition among bloggers (A19) | blog tone (Y60) |
| competition among bloggers (A19) | exaggerated negative tones (Y60) |
| exaggerated negative tones (Y60) | future stock returns (G17) |
| blog tone (Y60) | stock returns (G12) |