Regulation Fair Disclosure Comes to Hollywood: A Quantitative Analysis of Celebrities' Impact on Individual Stock Prices

Abstract

This thesis investigates whether celebrities’ Twitter output has an impact on stock returns of select companies. The results of this paper’s statistical model will be synthesized into a policy recommendation. Based on the findings, this thesis suggests that celebrities should be mandated to disclose whether they have invested in a company prior to tweeting about it. This policy recommendation will be presented as a logical extension of the Security and Exchange Commission’s Regulation Fair Disclosure. First, relevant classical economic literature is presented to characterize the traditional theories underlying Twitter activity. The behavioral economic concept of information cascades will be particularly emphasized as the means by which a particular sentiment gains online traction. Next, Granger Causality Analysis will affirm hypotheses derived from the economic theories and initial observations from this study’s data. Finally, discussion of results will demonstrate the need for an extension of Regulation Fair Disclosure.