Social media, financial reporting opacity and return co-movement: Evidence from Seeking Alpha

Abstract

In this study we develop a model to analyse the interplay between social media coverage, financial reporting opacity and stock return co-movement. Our model predicts a negative association between social media coverage and co-movement, because social media coverage lowers the information acquisition and processing cost for investors and therefore facilitates the incorporation of firm-specific information into stock price, which leads to reduced co-movement. It is also predicted that such effect is more pronounced among firms with higher financial reporting opacity. Using data collected from Seeking Alpha, the largest social media platform providing “third party generated” financial commentary and analysis in the US, we find results consistent with the predictions of the model. Our study has significant policy implications, because social media has become an increasingly important channel of information production and dissemination.