Jim Kyung-Soo Liew, PhD, Assistant Professor in Finance, Carey Business School, Johns Hopkins University
In this work, we document that the characteristics of securities derived from social media have significant power in explaining the time-series variation in daily stock returns. We examine the recent period from January 4, 2012 to October 30, 2015 in conjunction with direct tweet sentiments as provided by StockTwits. Notably, our “Social Media company-specific” factor is very different from prior “macro” factors. The Social Media Factor consists of views generated directly from the crowd on specific securities. Some have argued that this exposure to tweet sentiments is just noise and should not merit any compensation over time, reducing this factor to irrelevance. We disagree. Moreover, we document that the Social Media Factor, the “sixth” factor, is distinct from the traditional five factors authored by Fama and French (1992, 1993, and 1994). Additionally, we present evidence that tweet sentiments have the ability to “Granger-cause” movements in future stock market returns.