Abstract
Social media has become a real part of Main Street and Wall Street. Social media risk is hard to diversify, since it is a catalyst for contagion, causing an issue to `go viral' and affect a wide cross-section of firms. We show that institutional and retail investors demand a risk premium from stocks and bonds with higher social media betas. Unlike other risk factors whose origin is hard to pin down, social media risk is linked exclusively to the age of social media and did not exist prior to the rise of today's social media giants. Social media risk carries an annual risk premium of 7.2% in stocks and 3.3% in bonds.
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