Bulls and Bears: Disagreement and Trading Volume around News Announcements

• In Event: Investors disagreement and limited attention

Abstract

We investigate the association between textual analysis based measures of disagreement and trading volume around news events. Prior empirical studies that examine analysts’ forecasts potentially underrepresent the level of disagreement relative to the more heterogeneous investor groups. Using our new measure, which is based on posts from the StockTwits financial social media website, we revisit prior findings which examine the link between disagreement and trading volume around earnings announcements. We find strong results that both pre-existing disagreement and the change in disagreement following the earnings announcement are both associated with trading volume. We next provide novel evidence on the impact of more influential users in the StockTwits network and find that disagreement between influential investors is associated with higher trading volume. Finally, we provide additional evidence on disagreement before and after additional disclosures and news events and find consistent results for many of these information events. Our results provide further evidence on the importance of both pre-existing heterogeneity between investors and the importance of differences in the processing of accounting and other information.

Authors

• Asher Curtis, University of Washington

• Vernon J Richardson, University of Arkansas-Fayetteville

• Adam Booker, University of Arkansas