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Contemporary Accounting Research Vol. 41 No. 2 2024

Local information advantage and stock returns: Evidence from social media

Yuqin Huang1; Feng Li2; Tong Li3; Tse-Chun Lin4,5

1 School of Finance, Central University of Finance and Economics Beijing China · 2 Guanghua School of Management Peking University Beijing China · 3 School of Economics and Wang Yanan Institute for Studies in Economics, Xiamen University Xiamen China · 4 HKU Business School, The University of Hong Kong Pok Fu Lam Hong Kong · 5 Department of Finance National Taiwan University Taipei Taiwan

open access

Abstract

We examine the information asymmetry between local and nonlocal investors with a large dataset of stock message board postings. We document that abnormal relative postings of a firm, that is, unusual changes in the volume of postings from local versus nonlocal investors, capture locals' information advantage. This measure positively predicts firms' short‐term stock returns as well as those of peer firms in the same city. Sentiment analysis shows that posting activities primarily reflect good news, potentially due to social transmission bias and short‐sales constraints. We identify the information driving return predictability through content‐based analysis. Abnormal relative postings also lead analysts' forecast revisions. Overall, investors' interactions on social media contain valuable geography‐based private information.

DOI
10.1111/1911-3846.12935
Volume
41
Issue
2
Pages
1089-1119
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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