UC Irvine

This study documents strong effects of social interaction on investors’ attention and interpretations of earnings news. I estimate the firm-level investor social network and find that higher connectedness increases the announcement price reaction, reduces post-announcement drift, and decreases the long-run impact of the news on return volatility. I also find that social interaction triggers persistent disagreement-driven volume during and after the announcement. The evidence combined highlights the dual role of social interaction: It facilitates public information diffusion and thereby increases price efficiency, but also spawns investor disagreement and causes excessive trading volume that does not contribute to market efficiency.