Is Social Media the New Prophet in the Capital Market?: An Event Study Analysis

With the advent of information technology, the conventional market barriers of information asymmetries are being rapidly extinguished. One of the fall-outs of information technology revolution is dissemination of information at high frequency through social media. These breakthroughs have changed the dynamics of expectations formations. The multidimensional effects of social media on market expectations and firm value is the newest area of finance. In this study we examine the effect of micro-blogging activities on stock-market returns. The paper documents the rapid development of social media and defines how social media activity can be measured and actively used by investment professionals in their decision making process. The effects of a twitter announcement regarding biotechnology industry in USA on the stock market returns are examined based on the event study methodology. The results indicate that social media has significant impact on stock market returns.