Using geographic proximity as a measure of information advantages of social media users, this paper examines the informational role of social media in stock markets. We find that the tone in tweets by local Twitter users predicts future stock returns; in contrast, such predictability does not exist for nonlocal users. Moreover, the positive relation between the tone in local tweets and stock performance is more salient in firms with high information asymmetry. We also find that the tone of local tweeter users predicts subsequent earnings announcement returns. These findings suggest that geographic proximity indicates the availability of private information and social media can provide value-relevant information about local companies.
Keywords: Twitter; Social media; Textual analysis, Geographic proximity; Stock return.
