Social Media And The Information Diffusion Of The Stock Market

This paper focuses on the characteristics of social media information diffusion process,and discusses its impact on the China stock markets.Compared with traditional media,the information dissemination role of social media has the following differences:(1)social media brings more information sources.(2)Social media extends the information spreading range.(3)Social media enlarges the influence of dissenters.Data are collected from Weibo,and stock message boards and explore its impact on the asset pricing,firm value and the net asset value(nav)manipulation of mutual funds.First,on the information channel wise,we find that various types of user post have different impacts on stock return.The users are classified as either celebrities or ordinaries.We find that postings from celebrities significantly predict stock returns,whereas postings from ordinaries have no predictive power.Furthermore,postings from celebrities contain more future public information and current private information.Ordinaries' postings contain only stale information.The results suggest that different type of users play different roles in the information spreading process: ordinaries are information followers and celebrity users are providers.These results are consistent with the informed guru hypothesis.Second,regarding information dissemination,we find the impact of social media information diffusion on investor recognition and firm value.Our paper is based on the investor recognition hypothesis of Merton(1987).We collect the volume of post,reply and click from the stock message board,and uncover that information of social media increases investor recognition and firm value,which is more salient on high idiosyncratic risk firm.We also distinguish the social media and traditional recognition measures,and find their correlation and differences.We uncover that the post measures of social media are better proxies for investor recognition and the impacts of social media and traditional media on investor recognition can substitute each other.Last but not least,on the side of dissenters on social media,we find the effect of information from dissenters on social media on nav manipulation.We construct theoretic model on the effect of social media posting on the mutual nav manipulation.We also collect data of dissenters' alerting postings from online mutual fund forum and make empirical tests.We uncover that dissenters' alert can increase the proportion of investors who notice the manipulation and impact the fund managers' income and then lead to less manipulation.Our paper also provides a new fund manipulation income index deduced from our model that can measure the fund market regulating condition and investor trust on fund managers.