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News Diffusion in Social Networks and Stock Market Reactions

Author

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  • David Hirshleifer
  • Lin Peng
  • Qiguang Wang

Abstract

We study how the social transmission of public news influences investors’ beliefs and the securities markets. Using data on social networks, we find that earnings announcements from firms in higher-centrality counties generate a stronger immediate price, volatility, and trading volume reactions. Post-announcement, such firms experience weaker price drift and faster volatility decay but higher and more persistent volume. These findings suggest greater social connectedness facilitates the timely incorporation of news into prices, as well as opinion divergence and excessive trading. We propose the social churning hypothesis, which is confirmed using granular data from StockTwits messages and household trading records.

Suggested Citation

  • David Hirshleifer & Lin Peng & Qiguang Wang, 2025. "News Diffusion in Social Networks and Stock Market Reactions," The Review of Financial Studies, Society for Financial Studies, vol. 38(3), pages 883-937.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:3:p:883-937.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae025
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    Keywords

    G1; G4;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G4 - Financial Economics - - Behavioral Finance

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