Topic: Social Media-Driven Noise Trading Liquidity Provision and Price Revelation Ahead of Earnings Announcements

Speaker: Charles Martineau, Assistant Professor of Finance, University of Toronto Scarborough

Time: 10:00am-11:30am, October 23

Location: 4-101

Abstract:

Social media attention before earnings announcements is overly optimistic, fails to predict fundamentals, and generates buying pressure, leading to a 58 bps stock return as intermediaries seek higher returns for providing liquidity. Such price pressure distorts the price informativeness of fundamentals. A return reversal occurs immediately following announcements as markets correct mispricing. How stock prices respond to earning news is endogenous to the effect of social media in the pre-announcement price formation. A pre-announcement trading strategy based on expected social media attention yields 40 bps monthly alphas. When noise trading is systematically driven, it can deter liquidity provision and price revelation.

Speaker Biography:

Charles Martineau is an Assistant Professor of Finance at the University of Toronto Scarborough with a cross-appointment to the Finance area at Rotman. Charles specializes in the area of information economics. His research investigates intraday the speed of price discovery and its mechanism. He also examines the role of investor attention to macroeconomic news announcement premium. His work is published in leading finance and accounting journals and is generously supported by funding from the Social Sciences and Humanities Research Council (SSHRC), Toronto-Montreal Exchange, NASDAQ Educational Fund, and the Canadian Securities Institute.