Going Viral: Portfolio Performance of Social Media Stocks

Social media has changed and reshaped business models, economies, politics, and culture around the world. We identify social media stocks from various sectors by using a strict, academic definition and then study their performance, return characteristics, and contribution to portfolio management. Various multivariate regression results demonstrate that being recognized as a social media firm yields extra return. Investor attention is significantly priced, although investor sentiment is not. This suggests that macro level furor for social media stocks is not the cause, but rather investors paying attention at the firm level to these selections. Causality tests indicate that the default risk premium and volatility have incremental power in explaining the performance of social media stocks.