When More Information Hurts: Social Media and Investor Underperformance

In today’s digital era, social media is ubiquitous, and market participants are exposed to an unprecedented volume of financial information. While investors are arguably more informed, it remains an open question whether this translates into better and more disciplined decision-making.

A recent incident illustrates this concern: a group of online traders, including both professionals and retail investors, followed an online influencer known as “Captain Condor” and collectively lost approximately USD 50 million around Christmas, with many losing their entire life savings; compounding these losses, members also paid annual fees exceeding USD 5,000 to gain access to the social media guru’s group.

This episode again raises a fundamental question: does more information necessarily lead to better judgment, and how is social media reshaping the investment landscape?

Reference [1] examines this issue formally, using StockTwits data from 2013 to 2022 to analyze the impact of social media activity around earnings announcements.

The authors pointed out,

Focusing on earnings announcements, I find that social media information is overly optimistic and fails to predict fundamentals. This social media attention is associated with systematic noise trading, specifically retail buying pressure from retail investors in the equity market, which generates a 58 bps price drift ahead of earnings announcements. Such systematic noise trading worsens price revelation, undermining price informativeness ahead of earnings announcements…

Overall, these findings reveal that social media-driven optimism can lead retail investors to trade systematically in the equity and options market, leading to reduced price efficiency and potentially harming their wealth.

In short, the paper finds that social media information around earnings announcements is overly optimistic and fails to predict fundamentals. This behavior worsens price discovery, reduces price efficiency in both equity and options markets, and can ultimately harm retail investors’ wealth.

In conclusion, increased information flow does not automatically result in better decision-making, underscoring the importance of critical thinking, judgment, and disciplined analysis in the presence of abundant information.

Let us know what you think in the comments below or in the discussion forum.

References

[1]  Edna Lopez Avila, Charles Martineau, and Jordi Mondria, Social Media and the Distortion of Price Revelation, SSRN 4439793, 2025

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