Title: Customers as advisors: The role of social media in financial markets
Authors: Hailiang Chen, Prabuddha De, Yu (Jeffrey) Hu, and Byoung-Hyoun Hwang
This paper investigates the extent to which peer-based advice transmitted through social media affects the stock market.
We conduct textual analysis of articles published on Seeking Alpha, a popular social-media platform among investors.
We find that the views expressed in these articles associate strongly with contemporaneous and subsequent stock returns, and help predict earnings surprises.
The social media effect is stronger for articles that receive more attention and for companies held mostly by retail investors, the primary generators and consumers of social-media content.
Together, these findings point to the importance of social media as both a source of peer-based advice and a channel through which views become reflected in stock prices.
Download this working paper at SSRN
Title: IT-Enabled Broadcasting in Social Media: An Empirical Study of Artists' Activities and Music Sales
Authors: Hailiang Chen, Prabuddha De, and Yu (Jeffrey) Hu
With the emergence of social media and Web 2.0, broadcasting in the online environment has evolved into a new form of marketing due to the much broader reach enabled by information technology. This paper examines the impact of artists’ broadcasting activities on a leading social media site for music, MySpace, on music sales. We employ a panel vector autoregression (PVAR) model that allows us to treat our main variables as endogenous and to investigate the inter-relationship between broadcasting promotions and music sales. We find empirical evidence that the market reach measured by the size of an artist’s virtual friend network plays a crucial role in moderating the effect of IT-enabled broadcasting activities on sales. For the artists with many friends, broadcasting activities on MySpace have a significant impact on music sales; this, however, is not true for the artists with only a few friends. Our results continue to hold after controlling for artists’ popularity, changes in their network sizes over time, and the impact of user-generated content.