Working Paper: CEPR ID: DP18445
Authors: Karsten Müller; Yuanyuan Pan; Carlo Schwarz
Abstract: 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 notion of social media as an information channel, we find greater effects in counties with lower levels of pre-existing stock market knowledge and a decline in the number of financial advisors. Twitter adoption also fuels interest in "meme stocks," which tend to be more volatile and owned by retail investors. Overall, our results suggest a substantial impact of modern information technology on financial markets.
Keywords: social media; stock market participation; household finance
JEL Codes: G5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Twitter adoption (D16) | stock market participation (G10) |
| Twitter adoption (D16) | income derived from stock market investments (G11) |
| social media usage (Z13) | stock ownership per capita (D14) |
| Twitter adoption (D16) | interest in meme stocks (G40) |
| social media (Z13) | alternative information channel (D82) |
| Twitter usage (Z13) | belief stocks are best long-term investment (G12) |
| Twitter usage (Z13) | perceived value of gold and real estate (G19) |