Abstract:
In the extant literature there is no unanimous conclusion on whether the variation of R2 is due to the difference in firm-specific information or that in the irrational frenzy. One possible reason is that neither the amount of firm-specific information nor the degree of frenzy can be measured directly. Due to the dramatic development of information technology, weibo has been widely used by both public and companies. With the advent of the new technology, the amount of information disclosed by companies proliferates; the types of information released through it differ greatly from the conventional ones; even the way in which information is disseminated changes drastically. The popularity of weibo provides an excellent setting to distinguish between the above two explanations for R2. We find that: (1) R2 decreases after a company initiates its weibo, and (2) the average forecasting error of analysts decreases afterwards. The above results indicate that companies disclose firm-specific information through weibo, which has significant impacts on R2; (3) individual investors cannot fully understand the information disclosed through weibo. The fact that weibo information can be incorporated into stock price timely reflects the "information intermediary" role of financial analysts.
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