Sentiment revealed in social media and its effect on the stock market

Abstract

This paper investigates the extent to which sentiment revealed by traditional media and social media affects the stock market. We extract sentiment by conducting a textual analysis of articles published in the Wall Street Journal and Seeking Alpha, a popular social-media platform. We find that social-media sentiment associates strongly with contemporaneous and subsequent stock returns, even after controlling for traditional-media sentiment. The media effect is stronger for articles more closely followed by market participants and for companies mostly held by retail investors. Together, these findings point to the importance of social media as an additional channel through which views become reflected in the stock price.