Bulls and Bears: Investor Disagreement and Trading Volume Following Earnings Announcements

• In Event: AIS and the Markets

Abstract

ABSTRACT: We propose a new measure of investor disagreement, based on the explicit bull (positive) and bear (negative) recommendations made by participants in the investor-focused social media website StockTwits, which is available for a large sample and outperforms existing disagreement measures. Theory suggests that variation in trading volume following informative news can result from either disagreement about prior beliefs or the reordering of beliefs following the disclosure. We extend prior empirical studies that measure investor disagreement using the dispersion of analysts’ forecasts by providing evidence from explicit investor disagreement and dispersion in the tone of the posts between investors on social media. Consistent with the predictions of theory, we find that disagreement between investors on social media is positively associated with abnormal trading volume following earnings announcements. Finally, we find that the measure outperforms textual analysis measures and analyst forecast-based measures of disagreement.

Authors

• Vernon J Richardson, University of Arkansas-Fayetteville

• Asher Curtis, University of Washington

• Adam Booker, University of Arkansas