What the Tweet is going on? - A Study on how Rumor, Social Media Attention and Twitter Sentiment affects Share Volume

Abstract

We study rumors and Twitter attention focusing on acquisition transactions and how it affects market reaction, defined as abnormal trading volume, prior to announcement. We study 98 acquisition transactions, were 45 firms had tweets prior the acquisition announcement. We collected tweets one day prior to the announcement and 10 days back and perform sentiment analysis to proxy for investor sentiment. We find with statistical significance that firms with tweets has a 17.1% higher abnormal trading volume than those without, thus enable us to reject the null hypothesis. These findings are in line with previous research on how Twitter sentiment affects the stock turnover. As for how the sentiment in a tweet influences the abnormal trading volume, we can see that tweets with a neutral sentiment do affect the abnormal trading volume by 91,1% at 1% significance. We suggest by our findings that investors are not rational or rightly informed but overreact and trade on the unjustified information betting it could come true.