Can social media distort price discovery? Evidence from merger rumors

Weishi Jia, Giulia Redigolo, Susan Shu, Jingran Zhao

Research output: Indexed journal article Articlepeer-review

40 Citations (Scopus)
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We study whether social media can play a negative information role by impeding price discovery in the presence of highly speculative rumors. We focus on merger rumors, where most do not materialize. We find that merger rumors accompanied by greater Twitter activity elicit greater immediate market reaction even though rumor-related Twitter activity is unrelated to the probability of merger realization. The price distortion associated with tweet volume persists weeks after a rumor and reverses only after eight weeks. The price distortion is more pronounced for rumors tweeted by Twitter users with greater social influence, for target firms with low institutional ownership, and for rumors that supply more details. Our evidence suggests that social media can be a rumor mill that hinders the market's price discovery of potentially false information.

Original languageEnglish
Article number101334
JournalJournal of Accounting and Economics
Issue number1
Publication statusPublished - Aug 2020
Externally publishedYes


  • Merger and acquisition
  • Merger rumor
  • Persuasion bias
  • Rumor
  • Social media
  • Twitter


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