Market Reactions To Social Media Stock Recommendations

Information is the key to investment activities.Generally speaking,more information contributes to higher returns.Due to the multifarious information in the market and the limited time and energy of investors,media reports have become one of the indispensable tools for investors to obtain information.Undeniably,integrated recommendations can alleviate information asymmetry and make resource allocation more effective,meanwhile,they may cause market fluctuations by influencing the cognitive habits and trading behaviors of market participants.With the development of network,the media of stock recommendations are increasingly diversified.Social media,has rapidly surpassed traditional media,becoming a more popular carrier of information dissemination and diffusion.Taking wechat as the representative of social media,this paper applies the event study to examine the Chinese stock market reactions to recommendations issued on private financial official accounts and professional securities official accounts from 2012 to2018 respectively.Results show:(1)there is a significantly positive abnormal return on the days when recommendations are delivered,but it fails to last long with a subsequent steep drop,finally becoming negative in the event period.The corresponding reversal performance of cumulative abnormal return supports the price pressure hypothesis.The empirical results enrich the research of media coverage and capital market,confirming the existence of media effect in China’s stock market from the perspective of social media.(2)Different from the previous literature to have a comparison according to the market value of fundamental information,this paper further divides the total data into two subgroups based on the reporting number,article words number and the position of stock,finally verifying the different market performance between groups.The more stocks are reported,the fewer article words number stocks have and the more obvious the position is,the higher abnormal return stocks have on the event day.(3)In addition,it is found that compared with the securities official accounts,investors are more responsive to the information recommended by the private financial official accounts and it takes longer for them to recover.