Tweeting Associated With a Slight Return Boost

Many publicly traded corporations are using Twitter to convey business and financial data due to its lack of cost and its speed of dissemination.

Many publicly traded corporations are using Twitter to convey business and financial data. The allure of this online social networking service is its lack of cost and its speed of dissemination. The use of Twitter also appears to have a small but positive effect on returns. Shares of firms making use of Twitter rise by 19.5 basis points (0.195%) on the tweeting day. This gain is not subsequently reversed.

Researchers found this positive effect by analyzing the tweets [Twitter posts] of publicly traded corporations. By October 2013, six months after the Securities and Exchange Commission (SEC) allowed corporations to announce “key information” via social media outlets, 529 firms tweeted financial information. (Roughly half of all Russell 3000 firms operated a Twitter account and tweeted in the sample period of April to October 2013.)

The study’s authors say the positive returns support their hypothesis that “firms generally communicate positive information when using Twitter.” They further describe the returns as indicative of a “tweeting shock,” meaning the introduction of unexpected news and information.

Corporations do not confine themselves to Twitter. Traditional methods of disclosure, such as press releases and regulatory filings are also used. The medium for conveying information and the market reaction to it appears to depend, in part, on the value of the information itself. Returns are higher when tweets are combined with press releases, lower when only a press release is issued and even lower when the information is only conveyed via Twitter.

The decision of when to tweet is dependent on the news itself. Corporations are less likely to convey negative information during earnings season when investors are paying more attention. Firms tweeting bad news also tend to have stocks with greater short-sale constraints, making it harder for large investors and traders to bet against the stock. Negative tweets are more likely to be issued on Fridays, when fewer investors are paying attention.

As far as who tweets, size was described as “a positive predictor of tweeting,” meaning larger firms tweet more. Corporations with more analyst coverage are also more likely to tweet. A lower level of institutional ownership is also a trait, though it doesn’t hold true when other factors are controlled for.

Source: “Tweeting the Good News: Returns and Price Informativeness,” Mohamed Al Guindy and Ryan Riordan, SSRN, July 3, 2017.