Emojis and stock returns

Purpose - The authors explore how the sentiment expressed by emojis in comments on stocks is associated with the stocks' subsequent returns. Design/methodology/approach - By applying our own analyzer, the authors find a sentiment effect of emojis on stocks returns separately to the plain text-expressed sentiment in Reddit posts about meme stocks such as Gamestop during the Covid-19 pandemic. Findings - The authors document that a one-standard deviation change in emoji sentiment magnitude measured as the quantity of positive emoji sentiment posts over the previous hour is associated with an 0.06% (annualized: 109.2%) one-hour abnormal stock return compared to a mean of 0.03% (annualized: 54.6%). If the stock exhibits a higher intra-hour volatility, a proxy for uninformed noise trading, this relation is more pronounced and even stronger compared to stock return's relation to plain text sentiment. Research limitations/implications - The authors are not able to show causation that is open to future research. It also remains an open question how emojis impact market price efficiency. Practical implications - Emojis are positively related to stock returns in addition to plain text-expressed content if they are discussed heavily by retail investors in Internet boards such as Reddit. Social implications - Shared emotions expressed by emojis might have an influence on how disconnected individuals make homogeneous decisions. This argument might explain our found relation of emojis and stock returns. Originality/value - So, the study findings provide empirical evidence that emojis in Reddit posts convey information on future short-term stocks returns distinct from information expressed in plain text, in the case of volatile stocks, with a higher magnitude.