Impact of Firm-Initiated Tweets on Stock Return and Trading Volume

Abstract

Recent SEC guidelines enabled many Fortune 500 companies to actively adopt social media, such as Twitter, to disseminate information. In this paper, we analyze the relationship between tweets by corporations and stock returns. Our study used over 1.2 million corporate tweets made by thirty companies in the Dow Jones Industrial Average between April 2013 and July 2020. The shocks from the frequency of corporate tweets can positively impact stock returns and trading volume. We, therefore, examine causality and impulse response between frequency of corporate tweets, stock returns, and changes in trading volume using a vector autoregression model. Our findings indicate that 43 percent of stocks exhibit Granger causality between firm-initiated tweets and changes in trading volume. We find evidence consistent with the attention-induced price pressure hypothesis proposed by Barber and Odean. We observe that a shock in corporate tweeting behavior translates into a positive effect on changes in trading volume and returns in 73 percent and 60 percent of stocks, respectively. These results are significant for developing appropriate social media communication strategies. The findings are also valuable for investors and traders who can deploy forecasting models utilizing corporate tweets to earn superior returns.