Nonlocal Disadvantage : An Examination of Social Media Sentiment

202,616 Twitter posts covering 1,082 firms from November 2008 to June 2011 reveal that nonlocal Twitter posters consistently exhibit negative stock return predictability. Since nonlocal posts dominate the sentiment information from social media, this contrarian result highlights the danger of naïve reliance on social media sentiment. Nonlocal posters tweet positively about overvalued stocks that subsequently underperform while local posters do not exhibit such failing, which is consistent with geographical proximity reducing investor irrationality. The nonlocal disadvantage is larger in firms without public news and firms with higher information asymmetry, suggesting that richer information environments constrain the exuberance of nonlocal investors