The Price Impact of Tweets: A High-Frequency Study

Abstract

We examine the mechanism by which social media sentiment affects stock prices. Specifically, we assess the impact of Twitter feeds on stock returns at the intraday level. We find that an increase in buyer-initiated trades has a significantly positive price impact. This impact, however, is stronger with an increase in the number of tweets and sentiment, and persists even after controlling for volatility, liquidity shock, and limit-order activity. The impact of Twitter sentiment on prices causes a lingering mispricing effect that is not fully assimilated at the intraday level. Rather, this mispricing takes several days to correct.