| dc.description.abstract | In this paper, we collect data from the online investment platform Seeking Alpha to study the effect of social media on stock market trading. First, we find that the tone of Seeking Alpha articles and comments is informative in predicting future retail orders and short sales. Furthermore, we find that after Seeking Alpha article publications, retail order flows are significantly less contrarian, suggesting that social media accelerates information adoption by retail investors to make less un-informed decisions. Second, we decompose the tone of articles and comments into parts based on the informative signals and noises to find that more positive article noises predict more net buys from retail investors but more short sales from sophisticated investors. Related, predictability of both retail order imbalances and short sales on future returns are significantly greater on days that have Seeking Alpha articles published. Zero-cost portfolios combining information of Seeking Alpha article publications and retail order imbalances (short sales) realize an annualized alpha of around 16% (38%). Overall, our findings suggest that social media facilitate informed trading and help improve market efficiency. | |
