Research On Social Media Effect In China’s Stock Market

Fang and Press(2009)found that stocks with low media coverage often have a higher expected return,which is called the media effect in the stock market.However,the media referred to here are mainly newspapers,news,announcements and other traditional media.Thanks to the rapid development of computer technology,the communication platform of people in modern society has gradually moved from traditional media to social media.The social media platform has become the most frequently used new communication tool for investors.They can freely produce and share information on the social media platform.Compared with traditional media,social media has broadened the information channel and spread scope,and the information content is also more diversified.Therefore,from the perspective of replacing traditional media,it is of positive significance to explore whether social media has the same or different risk effects as traditional media,and how social media effects in China’s stock market need to be explored urgently.This paper selects the stock and stock bar data from 2013 to 2021 to carry out empirical research around the theme of how social media coverage affects the cross sectional earnings of stocks.Research findings: First,under the normative framework of asset pricing research,it is found that similar to the traditional media effect,low social media coverage will bring higher expected returns,and the average monthly excess return of long and short portfolios will reach 1.31%.There is also social media effect in China’s stock market.Moreover,the existing factor model cannot explain this risk premium.The risk of social media effect is a unique risk source in the stock cross section market.Introducing the pricing factor based on social media effect into the existing factor model can significantly improve the explanatory power of the existing model to the cross-sectional returns,and the GRS test found that this improvement effect is better in the bear market.Second,in investment practice,both the single-long strategy and the zero-cost strategy based on social media effect can surpass the performance of market portfolio income and gain considerable income.Third,the social media effect in the stock market is related to investors’ perception.The empirical results show that the stock bar posting is highly correlated with the investor perception proxy variable,which indicates that if a company’s social media coverage is low,it means that the company’s investor perception level is also low.The cost of obtaining information in the financial market is high,and investors bear the cognitive risk.The stock ticket needs to provide a higher rate of return to compensate,which is the fundamental reason for the existence of social media risk.Based on this,this paper believes that social media posting can become a new good proxy variable for investors’ cognition,which has obvious advantages over other traditional proxy variables.In view of the above research results,this paper believes that on the one hand,listed companies should rely on social media to actively carry out corporate image management and publicity,pay attention to social interaction with investors,reduce information asymmetry,improve investors’ awareness of the enterprise,and reduce financing costs to achieve the growth of corporate value.On the other hand,the regulatory authorities should monitor the interactive information disclosure in order to effectively curb the spread of false information and improve the efficiency of the financial market.