We examine the information asymmetry between local and nonlocal investors with a large dataset of stock message board postings. We document that abnormal relative postings of a firm, that is, unusual changes in the volume of postings from local versus nonlocal investors, capture locals' information advantage. This measure positively predicts firms' short-term stock returns as well as those of peer firms in the same city. Sentiment analysis shows that posting activities primarily reflect good news, potentially due to social transmission bias and short-sales constraints. We identify the information driving return predictability through content-based analysis. Abnormal relative postings also lead analysts' forecast revisions. Overall, investors' interactions on social media contain valuable geography-based private information. Supporting Information
- Ph.D., University of Amsterdam
- M.Phil., Tinbergen Institute
- M.B.A., National Chengchi University
- B.A., National Taiwan University
Professor Tse-Chun LIN received his Bachelor degree in Economics from National Taiwan University and MBA degree from National Chengchi University. He graduated with an M.Phil. in Economics from Tinbergen Institute in 2006. In 2009, he graduated from the Ph.D. program at the University of Amsterdam and joined The University of Hong Kong as Assistant Professor at HKU Business School. He was promoted to Associate Professor with tenure in 2015 and Professor in 2018.
Professor Tse-Chun LIN has been publishing his research in leading academic journals such as American Economic Review, Journal of Financial Economics, Review of Financial Studies, Journal of Accounting and Economics, Management Science, Journal of Financial and Quantitative Analysis, Review of Finance, etc. His research has also been featured in The Economist, WSJ, Bloomberg, and Investopedia, etc.
- Behavioral Finance
- Empirical Asset Pricing
- Financial Market
- Return Extrapolation and Volatility Expectations
Journal of Financial and Quantitative Analysis, forthcoming.
(with Tarun Chordia and Vincent Xiang) - Attention Constraints and Financial Inclusion
Journal of Financial and Quantitative Analysis, forthcoming.
(with Bo Huang, Jiacui Li, Mingzhu Tai, and Yiyuan Zhou) - Local Information Advantage and Stock Returns: Evidence from Social Media
Contemporary Accounting Research, 2024, Volume41, Issue 2, Pages 1089-1119.
(with Yuqin Huang, Feng Li, and Tong Li) - The Disutility of Stock Market Losses: Evidence from Domestic Violence
Review of Financial Studies, 2023, Volume 36, Issue 4, Pages 1703–1736.
(with Vesa Pursiainen) - Psychological Barrier and Cross-Firm Return Predictability
Journal of Financial Economics, 2021, Volume 142, Issue 1, Pages 338–356.
(with Shiyang Huang and Hong Xiang) - Risk-neutral Skewness, Informed Trading, and the Cross-section of Stock Returns
Journal of Financial and Quantitative Analysis, 2021, Volume 56, Issue 5, Pages 1713–1737.
(with Tarun Chordia and Vincent Xiang) - Does Short Selling Threat Discipline Managers in Mergers and Acquisitions Decisions?
Journal of Accounting and Economics, 2019, Volume 68, Issue 1, Article 101223.
(with Eric C. Chang and Xiaorong Ma) - Contractual Managerial Incentives with Stock Price Feedback
American Economic Review, 2019, Volume 109, Issue 7, Pages 2446–2468.
(with Qi Liu and Bo Sun) - Attention Allocation and Return Co-Movement: Evidence from Repeated Natural Experiments
Journal of Financial Economics, 2019, Volume 132, Issue 2, Pages 369–383.
(with Shiyang Huang and Yulin Huang) - Ex-day Returns of Stock Distributions: An Anchoring Explanation
Management Science, 2019, Volume 65, Issue 3, Pages 1076–1095.
(with Eric C. Chang, Yan Luo, and Jinjuan Ren) - Skewness, Individual Investor Preference, and the Cross-Section of Stock Returns
Review of Finance, 2018, Volume 22, Issue 5, Pages 1841–1876.
(with Xin Liu) - Do Superstitious Traders Lose Money?
Management Science, 2018/08, Volume 64, Issue 8, Pages 3772–3791.
Featured in The Economist
(with Utpal Bhattacharya, Wei-Yu Kuo, and Jing Zhao) - How Do Equity Lending Costs Affect Put Options Trading? Evidence from Separating Hedging and Speculative Shorting Demands
Review of Finance, 2016, Volume, 20, Issue 5, Pages 1911–1943.
(with Xiaolong Lu) - Why Does the Option to Stock Volume Ratio Predict Stock Returns?
Journal of Financial Economics, 2016, Volume 120, Issue 3, Pages 601–622.
(with Li Ge and Neil Pearson) - Informational Content of Options Trading on Acquirer Announcement Return
Journal of Financial and Quantitative Analysis, 2015, Volume 50, Issue 05, Pages 1057–1082.
(with Konan Chan and Li Ge) - Do Individual Investors Treat Trading as a Fun and Exciting Gambling Activity: Evidence from Repeated Natural Experiments
Review of Financial Studies, 2015, Volume 28, Issue 7, Pages 2128–2166.
(with Xiaohui Gao) - Cognitive Limitation and Investment Performance: Evidence from Limit Order Clustering
Review of Financial Studies, 2015, Volume 28, Issue 3, Pages 838–875.
(with Wei-Yu Kuo and Jing Zhao) - How the 52-week High and Low Affect Option-implied Volatilities and Stock Return Moments
Review of Finance, 2013, Volume 17, Issue 1, Pages 369–401.
(with Joost Driessen and Otto van Hemert) - A New Method to Estimate Risk and Return of Non-traded Assets from Cash Flows: The Case of Private Equity Fund
Journal of Financial and Quantitative Analysis, 2012, Volume 47, Issue 1, Pages 511–535.
(with Joost Driessen and Ludovic Phalippou)
[This article discusses domestic violence. If you or someone you know is experiencing domestic violence, you are not to blame, what is happening is not your fault. There are numerous resources and refuges available to you. They are listed at the end of this article.]
Stock returns during the week are negatively associated with the reported incidence of domestic violence during the weekend. This relationship is primarily driven by negative returns. The incidence of domestic violence increases with the magnitude of losses, and the effect increases with local stock market participation. Our findings suggest that negative wealth shocks caused by stock market crashes can affect stress levels within intimate relationships, escalate arguments, and trigger domestic violence. Stock market losses may reduce household utility beyond the shock to financial wealth, supporting gain-loss models where disutility from losses outweighs the utility from gains of a similar magnitude.
We provide a psychological explanation for the delayed price response to news about economically linked firms. We show that the return predictability of economically linked firms depends on the nearness to the 52-week high stock price. The interaction between news about economically linked firms and the nearness to the 52-week high can partially explain the underreaction to news about customers, geographic neighbors, industry peers, or foreign industries. We also find that analysts react to news about economically linked firms but the 52-week high effect reduces such reactions, providing direct evidence that the 52-week high affects the belief-updating process.
What could be the result if some compelling opportunities, like lottery jackpots, were potentially lucrative enough to distract the investors' attention from monitoring the stock market?