Abstract
Firms increasingly follow an “always on” philosophy, publishing multiple pieces of firm-generated content (FGC) every day. Current methodologies used in marketing are unfit to unbiasedly capture the impact of FGC disseminated intermittently throughout the day on stock markets characterized by ultra-high-frequency trading. They also neither distinguish between the permanent (i.e., long-term) and temporary (i.e., short-term) price impacts nor identify FGC attributes capable of generating these price impacts. In this study, the authors define price impact as the impact on the variance of stock price. Employing a market microstructure approach to exploit the variance of high-frequency changes in stock price, the authors estimate the permanent and temporary price impacts of the firm-generated Twitter content of S&P 500 information technology firms. The authors find that firm-generated tweets induce both permanent and temporary price impacts, which are linked to tweet attributes of valence and subject matter. Tweets reflecting only valence or subject matter concerning consumer or competitor orientation result in temporary price impacts, whereas those embodying both attributes generate permanent price impacts. Negative-valence tweets about competitors generate the largest permanent price impacts. Building on these findings, the authors offer suggestions to marketing managers regarding the design of intraday FGC.
Highlights
23 the authors define price impact as the impact on the variance of stock price
Employing the market microstructure approach, which relies on ultra-high frequency trading data analysis, we investigate the stock price impact of firm-generated content (FGC) where price impact is defined as the impact on the variance of stock price
Similar findings are obtained when relating tweets that only reflect a consumer or competitor subject matter, the reduction in permanent price impact and increase in temporary price impact they elicit are of smaller magnitudes. These findings indicate that tweets reflecting only valence or subject matter result in 52 temporary price impacts, which is commonly associated with the incorporation of noise into the price discovery process (O’Hara, 2003)
Summary
We examine the real-time impact of FGC on the variance of firms’. stock price. Adds 59 a new perspective to the marketing literature stream on the financial impact of FGC This assessment of FGC’s temporary and permanent price impacts adds richness to the examination. By selecting tweet attributes, such as valence and subject matter, marketing managers can design Twitter content to generate varying degrees of permanent or 59 temporary impact. From a market quality perspective, firm managers should prefer tweets that generate a permanent price impact, and our research provides some useful indications on how 6 to achieve this outcome. Increases in firm cost of capital (Diamond and Verrecchia, 1991) This suggests that the benefits of designing tweets to generate ‘buzz’ and incorporate information into stock price. To support marketing managers in their intraday social media strategy design, Table 7 is designed as a set of insights based on our findings
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