The Impact of Divergence of Opinions About Earnings within a Social Network

Abstract

We collect a unique dataset of Twitter posts and use these posts to contrast investors' private opinions about stocks with opinions available in public press releases. This technique allows us to directly measure the divergence of investors' opinions from publicly available information. We find that post-earnings announcement returns are significantly more negative when divergence of opinion is present in the pre-announcement period. These negative post-announcement returns are concentrated in stocks where divergence of opinion is resolved into agreement after the announcement. Consistent with recent theory, investors' opinions can either converge or diverge around earnings announcements and the level of this disagreement is strongly related to volume.