Investor sentiment and the dispersion of stock returns: Evidence based on the social network of investors

Supplementary data are available online at https://www.sciencedirect.com/science/article/pii/S1057521921002362?via%3Dihub#s0110 .This paper extracts an investor sentiment indicator for the 30 DJIA stocks based on the textual classification of 289,024 online tweets posted on the so-called StockTwits, and examines its contemporaneous and predictability effects on the dispersion of stock returns using the quantile regression technique. We find that both contemporaneous and predictability effects of sentiment are heterogeneous throughout the return distribution. Specifically, sentiment is positively contemporaneously associated with stock returns at higher quantiles. However, it is a strong negative predictor of future returns at lower quantiles. Overall, our findings are broadly consistent with most behavioural theories and show that sentiment mainly affects the valuation of assets in extreme market conditions