Work in Progress

AI Personality Extraction from Faces: Labor Market Implications

(with Marius Guenzel, Shimon Kogan, and Kelly Shue)

Bad News Bearers: The Negative Tilt of the Financial Press

(with Betty Liu and Eric So)   SSRN link    Abstract
We show that increased media coverage strongly predicts lower subsequently announced firm fundamentals, earnings surprises, and higher likelihoods of bankruptcy, dividend cuts, and delistings. Additionally, we find that media articles often convey negative sentiment, with investor attention increasing around the publication of negative articles, suggesting that the media tilts coverage toward negative events to drive readership. We also show that media coverage initially impedes price discovery for negative news through an attention effect, and that investors respond sluggishly to the negative signal embedded in media coverage decisions, leading to a gradual incorporation of the negative information into prices and return predictability. R&R, Management Science (MS)

Disagreement on the Horizon

(with Tony Cookson and Chukwuma Dim )   SSRN link    Abstract
Using data from The Motley Fool's social prediction platform, CAPS, we find substantial differences in stock predictions across investment horizon. Short-horizon investors react more than twice as much as long-horizon investors to earnings surprises and technical view events. Around acquisition rumors, short- and long-horizon investors update in opposite directions about the target: short-term investors become more optimistic, while long-term investors become more pessimistic. Motivated by these findings, we develop a firm-day measure of \textit{horizon disagreement}, spanning from 2006 to 2022, and find it relates significantly to abnormal trading. Additionally, the disagreement-trading relation strengthens on earnings announcement days, providing new evidence on the role of model disagreement.

Strategic Disclosure Timing and Insider Trading

  SSRN link    Abstract
I provide evidence that managers strategically manipulate their company’s information environment to extract private benefits. Exploiting an SEC requirement that Rers disclose certain material corporate events within five business days, I show that managers systematically disclose negative events when investors are more distracted, causing returns to under-react for approximately three weeks. Strategic disclosure timing is concentrated among smaller firms with high retail-investor ownership and low analyst coverage. Furthermore, I use the fact that most insider sales are scheduled in advance to demonstrate that top managers are more than twice as likely to strategically time disclosures if the return under-reaction benefits their insider sales. Finally, I find that firms that systematically disclose negative news on Fridays have higher levels of earnings management.

Celebrity Persuasion

(with Matteo Benetton, William Mullins, and Jan Toczynski)   Coming Soon    Abstract
Celebrities have long leveraged their influence to shape outcomes in politics, marketing, and now in cryptocurrency markets. As investors increasingly rely on social media for financial news and investment guidance, celebrities are playing a larger role in the financial advice landscape. Using survey, market, and transaction-level data, we examine the persuasion rates of celebrity cryptocurrency endorsements on Twitter. Investors appear to treat these celebrity tweets as financial advice: controlling for crypto-related news, the probability of cryptocurrency investment by individuals on tweet days increases by 13.5%, with stronger effects among men, wealthier individuals, and older investors. We find that celebrities have high persuasion rates, ranging from 9% to 13%, and they impact equilibrium outcomes – market trading volume in the targeted coin increases by 7% in the hour following the celebrity tweet. Finally, we show that a representative retail investor who trades following celebrity tweets makes negative returns after transaction costs.

Investor Disagreement: Daily Measures from Social Media

(with Tony Cookson)   SSRN link    Abstract
Disagreement is pervasive in financial markets. This paper highlights the properties of daily disagreement and daily attention measures derived from the investor social network StockTwits. Daily disagreement and trading volume are strongly related to one another, both in the sample used in Cookson and Niessner (2020) and out of sample through 2021. Disagreement among investors using different investment strategies as well as within them each relate to trading volume, but within-strategy disagreement exhibits a stronger relationship. These findings all hold after controlling for attention, which is also positively related to daily trading volume.

Published and Accepted Papers

Can Social Media Inform Corporate Decisions? Evidence from Merger Withdrawals

(with Tony Cookson and Christoph Schiller)   SSRN link    Abstract
This paper studies whether social media sentiment can predict merger withdrawals. We find that a standard deviation increase in social media sentiment after a merger announcement is associated with a 0.64 percentage points lower probability of withdrawal (16.6% of the average). This effect is unexplained by abnormal price reactions, traditional news, and analyst recommendations. Consistent with manager learning, the informativeness of social media strengthens after firms start corporate Twitter accounts. The informativeness is driven by longer acquisition-related tweets by fundamental investors, rather than memes and price trend tweets. These findings suggest that social media signals can be important for corporate decisions.

Social Media and Finance

(with Tony Cookson and Will Mullins)   SSRN link    Abstract
Social media has become an integral part of the financial information environment, changing the way financial information is produced, consumed and distributed. This article surveys the financial social media literature, distinguishing between research using social media as a lens to shed light on more general financial behavior and research exploring the effects of social media on financial markets. We also review the social media data landscape.

Does Disagreement Facilitate Informed Trading?

(with Tony Cookson and Vyacheslav Fos)   SSRN link    Abstract
Using high-frequency disagreement data from the investor social network StockTwits, we find that greater unsophisticated disagreement facilitates informed buying and selling. During periods of overvaluation, the facilitating effect of disagreement on trading is dampened for informed buyers but is amplified for informed sellers. These findings are unexplained by sentiment, news and retail order flow, and they remain when we measure disagreement overnight and disagreement of technical investors, which alleviates concern that disagreement and informed trading respond to a common shock. These findings suggest that informed traders respond meaningfully but differently to valuation changes induced by unsophisticated disagreement.

Are Cryptos Different? Evidence from Retail Trading
Journal of Financial Economics (2024)

(with Shimon Kogan, Igor Makarov, and Antoinette Schoar)   SSRN link   Abstract
Trading in cryptocurrencies grew rapidly over the last decade, dominated by retail investors. Using data from eToro, we show that retail traders are contrarian in stocks and gold, yet the same traders follow a momentum-like strategy in cryptocurrencies. The differences are not explained by individual characteristics, investor composition, inattention, differences in fees, or preference for lottery-like assets. We conjecture that retail investors have a model where cryptocurrency price changes affect the likelihood of future widespread adoption, which leads them to further update their price expectations in the same direction

The Social Signal
Journal of Financial Economics (2024), Editor's Choice

(with Tony Cookson, Runjing Lu, and William Mullins)   SSRN link    Abstract
We examine social media attention and sentiment from three major platforms: Twitter, StockTwits, and Seeking Alpha. We find that, even after controlling for firm disclosures and news, attention is highly correlated across platforms, but sentiment is not: its first principal component explains little more variation than purely idiosyncratic sentiment. Using market events, we attribute differences across platforms to differences in users (e.g., professionals vs. novices) and differences in platform design (e.g., character limits in posts). We also find that sentiment and attention contain different return-relevant information. Sentiment predicts positive next-day returns, but attention predicts negative next-day returns. These results highlight the importance of distinguishing between social media sentiment and attention across different investor social media platforms. In the burgeoning social finance literature, nearly all papers examine single platforms; our paper cautions that attention-related results from these papers will likely generalize but results concerning sentiment may not.

Social Media and Financial News Manipulation
The Review of Finance (2023)

(with Shimon Kogan and Toby Moskowitz)   SSRN link    Abstract
We dissect an undercover SEC investigation into the manipulation of financial news on social media to study the indirect effects of market manipulation. While fraudulent news had a direct impact on retail trading and prices, revelation of the fraud caused market participants to discount all news, including legitimate news, from these platforms. The results highlight the indirect consequences of fraud and its spillover effects that reduce the social network’s impact on information dissemination, especially for small firms. The effect appears to dissipate over time, becoming insignificant a year later. The results highlight the importance of social capital for financial activity.

Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales
The Review of Financial Studies (2020), Lead Article and Editor's Choice

(with Sabrina Howell and David Yermack)   SSRN link    Abstract
Initial coin offerings (ICOs) have emerged as a new mechanism for entrepre- neurial finance, with parallels to initial public offerings, venture capital, and pre- sale crowdfunding. In a sample of more than 1,500 ICOs that collectively raise $12.9 billion, we examine which issuer and ICO characteristics predict successful real outcomes (increasing issuer employment and avoiding enterprise failure). Success is associated with disclosure, credible commitment to the project, and quality signals. An instrumental variables analysis finds that ICO token exchange listing causes higher future employment, indicating that access to token liquidity has important real consequences for the enterprise.

Why Don't We Agree? Evidence from a Social Network of Investors
Journal of Finance (2020)

(with Tony Cookson)   SSRN link    Abstract
We study sources of investor disagreement using sentiment of investors from a so- cial media investing platform, combined with information on the users’ investment approaches (e.g., technical, fundamental). We examine how much of overall disagree- ment is driven by different information sets versus differential interpretation of infor- mation by studying disagreement within and across investment approaches. Overall disagreement is evenly split between both sources of disagreement, but within-group disagreement is more tightly related to trading volume than cross-group disagreement. Although both sources of disagreement are important, our findings suggest that in- formation differences are more important for trading than differences across market approaches.

Is Investor Attention for Sale? The Role of Advertising in Financial Market
Journal of Accounting Research (2019)

(with Joshua Madsen)   SSRN link    Abstract
Prior research documents capital market benefits of increased investor attention to ac- counting disclosures and media coverage, however little is known about how investors and markets respond to attention-grabbing events that reveal little nonpublic infor- mation. We use daily firm advertising data to test how advertisements, which are designed to attract consumers’ attention, influence investors’ attention and financial markets (i.e., spillover effects). Exploiting the fact that firms often advertise at weekly intervals, we use an instrumental variables approach to provide evidence that print ads, especially in business publications, trigger temporary spikes in investor attention. We further find that trading volume and quoted dollar depths increase on days with ads in a business publication. We contribute to research on how management choices influence firms’ information environments, determinants and consequences of investor attention, and consequences of advertising for financial markets.