An Inquiry into the Regulation of Social Media Disclosure Policy and its Impacts on Retail Investor Trading Activity

Finance theory has evolved rapidly over recent decades, as the growth of mass electronic data sets have allowed researchers to apply theory and craft it to results seen in the real world. Financial policy has seen intense debate all across the world, but one of the more silent agents of advancement has been online financial disclosure policy. Through the past few decades, we have seen the mutual growth between technology and policy, and how their interplay shapes the modern world we live in. Investor relations policy has never been at a greater point of allowing information dissemination than today, as with the de-regulation of social media disclosure, companies are able to, like never before, access a worldwide audience to deliver news, earnings, and press release statements to any average person(from now on referred to as the retail investor). Although firms now routinely disclose relevant information through media like Twitter, little research has studied how those disclosures affect retail investor trading decisions. Previous literature in social media’s impact on investors delves into accounting and psychologically focused material. In this paper, we look at the timeline of a year before and after the deregulation of social media as a hub of investor disclosure, from mid 2012 to mid 2014, and take the top 250 companies in the United States as a source for tweet releases, as well as high frequency TAQ (Trade and Quote) data parsed for data unique to retail investors. Through our research on the window of 2012-2014, we have discovered that retail investor trading activity is indeed influenced by Twitter company disclosures, especially on earnings days and tweets with earnings information. The implications of this are very exciting, as this effect has likely only multiplied in the 5 years since, and leads twitter and other DAIT’s to be a significant factor in retail investor trading decisions.