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Social Media and Financial News Manipulation

Author

Listed:
  • Shimon Kogan
  • Tobias J Moskowitz
  • Marina Niessner

Abstract

We examine an undercover Securities and Exchange Commission (SEC) investigation into the manipulation of financial news on social media. While fraudulent news had a direct positive impact on retail trading and prices, revelation of the fraud by the SEC announcement resulted in significantly lower retail trading volume on all news, including legitimate news, on these platforms. For small firms, volume declined by 23.5% and price volatility dropped by 1.3%. We find evidence consistent with concerns of fraud causing the decline in trading activity and price volatility, which we interpret through the lens of social capital, and attempt to rule out alternative explanations. The results highlight the indirect consequences of fraud and its spillover effects that reduce the social network’s impact on information dissemination, especially for small, opaque firms.

Suggested Citation

  • Shimon Kogan & Tobias J Moskowitz & Marina Niessner, 2023. "Social Media and Financial News Manipulation," Review of Finance, European Finance Association, vol. 27(4), pages 1229-1268.
    • Handle: RePEc:oup:revfin:v:27:y:2023:i:4:p:1229-1268.
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    File URL: http://hdl.handle.net/10.1093/rof/rfac058
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    References listed on IDEAS

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    Cited by:

    1. Mignot, Sarah & Pellizzari, Paolo & Westerhoff, Frank H., 2024. "Fake news and asset price dynamics," BERG Working Paper Series 192, Bamberg University, Bamberg Economic Research Group.
    2. Hong, Ziyang & Liu, Qingfu & Tse, Yiuman & Wang, Zilu, 2023. "Black mouth, investor attention, and stock return," International Review of Financial Analysis, Elsevier, vol. 90(C).
    3. Cookson, J. Anthony & Lu, Runjing & Mullins, William & Niessner, Marina, 2024. "The social signal," Journal of Financial Economics, Elsevier, vol. 158(C).
    4. Zhong, Zhiyuan & Wu, Qiang & Wang, Manling, 2024. "Does the U.S.-China trade war stop? A novel event study on fake news and stock price in China," Finance Research Letters, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Social media; FinTech; Stock market manipulation; Seeking Alpha; Trust;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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