“Crowd Wisdom or Rumor Mill? The Dual Role of Social Media” by Dr. Susan Z. Shu
Dr. Susan Z. Shu
Associate Professor in Accounting
Carroll School of Management
We study the dual role of social media, crowd wisdom and rumor mill, in the price discovery of potentially false merger rumors. Falsely rumored targets with high user tweet volume experience greater rumor-period market reaction and prolonged price discovery compared to those with low tweet volume. Such behavior is more pronounced among targets with low institutional holdings and rumors that supply more details. Finally, the accuracy of a merger rumor is negatively related to rumor-period tweet volume. Our evidence suggests that in the presence of false rumors, the rumor mill effect of social media prevails and impedes price discovery.