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Social Media And Stock Returns: Is There Value In Cyberspace?

Social media is an increasingly pervasive and influential force in modern civilization. Its reach as a platform for communication in every aspect of life, from the personal to the economic and the political, is perhaps unique in history. In the field of investing, social media has enabled an unprecedented level of collaboration among investors of all types, and provided a wealth of new data for exploration and exploitation.

This review of social media literature represents a selection of articles we found particularly pragmatic and/or interesting. Although we have not done research in the area of social media, we are always on the hunt for interesting insights, and offer these papers for your thoughtful consideration.

The literature review is organized under three headings:

  • Crowdsourcing of earnings forecasts and stock recommendations
  • Using Facebook, Google and Twitter content
  • Corporate use of social media


Several articles evaluate the predictive capabilities of text and estimate/recommendation-based data sets (Estimize, SumZero, Seeking Alpha). Two of the articles find that Estimize’s crowdsourcing model produces superior earnings estimates to the traditional sell-side analyst consensus, similar to the so-called whisper numbers of the late ‘90s.

Other articles show a link between effective corporate use of social media and future stock returns. Still others evaluate the usefulness of text analysis – Facebook status updates, Google trends and Seeking Alpha stock write ups – in predicting stock price movements. A particularly interesting article shows that buy-side, crowd-sourced research reports from SumZero, paired with analyst recommendations that are contrary to those reports, predict significant positive excess returns. We hope that this collection of papers may serve as a guidepost on a potentially fruitful area of new research.