Abstract. Most homeowners do not have enough insurance coverage to rebuild their house after a total loss. Using contract-level data from 24 homeowners insurance companies in Colorado, we show wide differences in average underinsurance across insurers that persist conditional on policyholder characteristics. Underinsurance matters for disaster recovery. Across households that lost homes to a major wildfire, each 10 p.p. increase in underinsurance reduces the likelihood of filing a rebuilding permit within a year by 4 p.p.. To understand why consumers purchase underinsured policies, we build a discrete choice insurance demand model. The results suggest that policyholders treat insurers that write less coverage as if they set lower premiums, forgoing options to get more coverage at the same premium from other insurers – a pattern we call coverage neglect. Our findings suggest that coverage limits are either not salient to consumers or difficult to estimate without the input of insurance agents. Under a counterfactual without coverage neglect, consumer surplus increases by $290 per year, or 10% of annual premiums, on average.

Abstract. Immigrants enter the U.S. with a blank credit history, regardless of age or home country experience. Motivated by this, we study the assimilation of immigrants into American consumer credit markets. We find immigrants are positively selected: immediately upon credit market entry, immigrant credit scores are 20 to 35 points higher than non-immigrants, on average. Despite their greater creditworthiness, immigrants–especially those who arrive later–are delayed in their credit access and have lower average credit card limits for up to a decade. Immigrants are also less likely to access auto loans and mortgages, a gap that persists into their forties and is unexplained by geographic fixed effects.

Abstract. This paper develops daily market-wide sentiment and attention indexes derived from millions of posts across major investor social media platforms. We find that sentiment extrapolates from past market-wide returns and exhibits a strong reversal. In contrast, attention predicts negative returns as a continuation of previous trends. The two indexes have distinct predictions for aggregate trading: abnormal trading rises when sentiment is low and attention is high. To identify the drivers of attention and sentiment, we use a shock to data sharing networks: We find sentiment spreads through real firm connections while attention does not. Moreover, attention rises after abnormally high trading, while sentiment rises after abnormally high returns. This extrapolative return pattern is asymmetric, primarily driven by negative market jumps. These findings provide new evidence on the daily market dynamics of sentiment and attention.

Abstract. Using data from The Motley Fool's social prediction platform, CAPS, we find substantial differences in stock predictions across investment horizon. Short-horizon investors react more than twice as much as long-horizon investors to earnings surprises and technical view events. Around acquisition rumors, short- and long-horizon investors update in opposite directions about the target: short-term investors become more optimistic, while long-term investors become more pessimistic. Motivated by these findings, we develop a firm-day measure of \textit{horizon disagreement}, spanning from 2006 to 2022, and find it relates significantly to abnormal trading. Additionally, the disagreement-trading relation strengthens on earnings announcement days, providing new evidence on the role of model disagreement.

Abstract. We study how market returns shape news consumption, employing 700 million pageviews over 27 months from Australia's largest financial newspaper, the Australian Financial Review. Aggregate news consumption intensifies on days when the Australian market index decreases, led by a dramatic spike in consumption of markets news. By contrast, firm-specific news consumption declines when the aggregate market moves more (up or down). These findings imply aggregate and firm-specific news are substitutes for one another, consistent with theories of limited attention. These news consumption effects are strongest for fresh news, but they are also present for stale news articles on days when there are no articles about the firm.

Abstract. We provide new facts about how news arrival affects the uncertainty of probabilities of firm outcomes (ambiguity, or Knightian uncertainty). We show that clarifying news leads to sharp decreases in ambiguity, while opaque news tends to increase ambiguity. The persistence and magnitudes of these patterns depend on the firm’s information environment. which is corroborated using random disruption of investors’ access to EDGAR. We further show that higher ambiguity leads to lower engagement on social media platforms and a weaker connection between disagreement and trading volume, providing novel evidence on how ambiguity shapes market outcomes.

Abstract. We study how firm ambiguity—Knightian uncertainty—affects investor trading behavior using the options market as a laboratory. Greater ambiguity in the underlying asset negatively relates to both options open interest and options trading volume. The reduction in options trading activity is stronger for options with shorter maturities and out-of-the-money options that are hard-to-value. Greater ambiguity is also associated with a reduction in the informativeness of options trading for future stock prices, and it is associated with lower delta-hedged options returns for both puts and calls. The effect of ambiguity is distinct from and contrasts with the well-documented effect of risk, and shares a similar economic significance. These findings illustrate that even sophisticated market participants, like options traders, are influenced by ambiguity to limit their market participation and trade less.

Abstract. Person-to-person charity has grown substantially, yet little is known about who benefits from it. Using data on crowdfunding campaigns linked to individual credit records, we ask whether crowdfunding helps people in greater need after a major wildfire. Holding losses fixed, high-income beneficiaries (top-tercile) receive 25% more support and are more likely to have a campaign than low-income beneficiaries (bottom-tercile). Our tests attribute these income differences to several network advantages of high-income beneficiaries, particularly offline connections. These differences matter because more crowdfunding is associated with faster recovery, and these micro mechanisms are also consistent with evidence in a national sample.

Abstract. After the run on Silicon Valley Bank (SVB), U.S. regional banks entered a period of significant distress. We quantify social media's role in this distress using comprehensive Twitter data.  During the SVB run period, banks with high pre-existing exposure to Twitter lost 4.3 percentage points more stock market value. Moreover, Twitter pre-exposure interacts significantly with classical run risks to predict greater run severity and greater deposit outflows during Q1 2023, effects unexplained by other banking or market characteristics. At the hourly frequency during the run, high Twitter attention over the past four hours predicts stock market losses, especially for banks with high run risks.  By contrast, we find that negative Twitter sentiment does not amplify bank run risks.  Rather, our evidence points to a distinctive role of Twitter attention by tech community members who are likely depositors in SVB, as well as tweets that mention running and contagion. 

Abstract. Disagreement is pervasive in financial markets. This paper highlights the properties of daily disagreement and daily attention measures derived from the investor social network StockTwits. Daily disagreement and trading volume are strongly related to one another, both in the sample used in Cookson and Niessner (2020) and out of sample through 2021. Disagreement among investors using different investment strategies as well as within them each relate to trading volume, but within-strategy disagreement exhibits a stronger relationship. These findings all hold after controlling for attention, which is also positively related to daily trading volume.

Abstract. Using high-frequency disagreement data from the investor social network StockTwits, we find that greater investor disagreement facilitates informed trading by activists and short sellers. These findings are unexplained by sentiment, news and retail order flow, and they remain when we measure disagreement overnight, which alleviates concern that disagreement and informed trading respond to a common shock. When short selling is costly, the facilitating effect of disagreement on trading is dampened for informed buyers but is amplified for sellers. These findings suggest that informed traders respond meaningfully to valuation changes induced by disagreement.

Abstract. Speculative language in corporate disclosures can convey valuable information on firms’ fundamentals. We evaluate this idea by developing a measure for speculative statements based on sentences marked with the "weasel tag" on Wikipedia. In the 16-week test period after filing, greater use of speculative statements in 10-Ks predicts higher and non-reverting abnormal returns, more insider and informed buying, and higher news sentiment. These findings imply that managers' usage of speculative language in 10-Ks reflects voluntary disclosure of their private information about the positive prospects of events when market implications of the events are uncertain and thus have room for (re)interpretation.

Abstract. This paper studies whether social media sentiment predicts merger withdrawals. We find that a standard deviation increase in social media sentiment after a merger announcement is associated with a 0.64 percentage points lower probability of withdrawal (16.6% of the average). This effect is unexplained by abnormal price reactions, traditional news, and analyst recommendations. Consistent with manager learning, the informativeness of social media strengthens after firms start corporate Twitter accounts. The informativeness is driven by longer acquisition-related tweets by fundamental investors, rather than memes and price trend tweets. These findings suggest that social media signals can be important for corporate decisions. 

Abstract. Social media has become an integral part of the financial information environment, changing the way financial information is produced, consumed and distributed. This article surveys the financial social media literature, distinguishing between research using social media as a lens to shed light on more general financial behavior and research exploring the effects of social media on financial markets. We also review the social media data landscape.

Abstract. We examine social media attention and sentiment from three major platforms: Twitter, StockTwits, and Seeking Alpha. We find that, even after controlling for firm disclosures and news, attention is highly correlated across platforms, but sentiment is not: its first principal component explains little more variation than purely idiosyncratic sentiment. Using market events, we attribute differences across platforms to differences in users (e.g., professionals vs. novices) and differences in platform design (e.g., character limits in posts). We also find that sentiment and attention contain different return-relevant information. Sentiment predicts positive next-day returns, but attention predicts negative next-day returns. These results highlight the importance of distinguishing between social media sentiment and attention across different investor social media platforms. In the burgeoning social finance literature, nearly all papers examine single platforms; our paper cautions that attention-related results from these papers are more likely to generalize than results concerning sentiment.

Abstract. We find evidence of selective exposure to confirmatory information among 400,000 users on the investor social network StockTwits. Self-described bulls are 5 times more likely to follow a user with a bullish view of the same stock than self-described bears. Consequently, bulls see 62 more bullish messages and 24 fewer bearish messages than bears over the same 50-day period. These “echo chambers” exist even among professional investors and are strongest for investors who trade on their beliefs. Finally, beliefs formed in echo chambers are associated with lower ex-post returns, more siloing of information and more trading volume. 

Abstract. Using individual credit bureau data matched with cash windfalls from fracking, we estimate that windfall recipients reduce debt-to-income by 2.4 percentage points relative to no-windfall controls. Debt repayment effects are 3 times stronger for subprime individuals than for prime individuals. Based on the timing of upfront versus continuing cash payments, debt repayment coincides with the timing of payments but not with news about future payments. These findings present a challenge for purely forward-looking models of debt. Indeed, when we incorporate a windfall shock into a forward-looking model, the model predicts an increase in debt that runs counter to our evidence of debt repayment.

Abstract. We study the effect of personal wealth on entrepreneurial decisions using data on mineral payments from Texas shale drilling to individuals throughout the United States. Large cash windfalls increase business formation by 0.8 to 2.1 percentage points, but do not affect transitions to self-employment. By contrast, cash windfalls significantly extend self-employment spells, but do not affect the duration of business ownership. Our findings help reconcile contrasting findings in prior work: liquidity constraints have different effects on entrepreneurial activity that may depend on the entrepreneur’s motivations. 

Abstract. We develop a new measure of innovation using the text of analyst reports of S&P 500 firms. Our text-based measure gives a useful description of innovation by firms with and without patenting and R&D (research and development). For nonpatenting firms, the measure identifies innovative firms that adopt novel technologies and innovative business practices (e.g., Walmart’s cross-geography logistics). For patenting firms, the text-based measure strongly correlates with valuable patents, which likely capture true innovation. The text-based measure robustly forecasts greater firm performance and growth opportunities for up to four years, and these value implications hold just as strongly for innovative nonpatenting firms.

Abstract. Using a tractable structural model of the matching equilibrium between underwriters and equity-issuing firms, we study the determinants of value in underwriter–firm relationships. Our estimates imply that high underwriter prestige is associated with 5.3%–14.1% greater equilibrium surplus. According to the structural model, high prestige exhibits a significant certification effect throughout the sample (1985–2010), but there is also a countervailing effect of underwriter prestige that reflects subscriber preferences for more underpricing. Consistent with trading off profits from issuers and subscribers, high-prestige underwriters underprice more in hot markets when rents to catering to subscribers are greatest.

Abstract. We use party-identifying language—like “liberal media” and “MAGA”—to identify Republican users on the investor social platform StockTwits. Using a difference-in-difference design, we find that partisan Republicans remain relatively unfazed in their beliefs about equities during the COVID-19 pandemic, while other users become considerably more pessimistic. In cross-sectional tests, we find Republicans become relatively more optimistic about stocks that suffered the most during the COVID-19 crisis, but more pessimistic about Chinese stocks. Finally, stocks with the greatest partisan disagreement on StockTwits have significantly more trading in the broader market, explaining 28% of the increase in stock turnover during the pandemic.

Abstract. We study sources of investor disagreement using sentiment of investors from a social media investing platform, combined with information on the users' investment approaches (e.g., technical, fundamental). We examine how much of overall disagreement is driven by different information sets versus differential interpretation of information by studying disagreement within and across investment approaches. Overall disagreement is evenly split between both sources of disagreement, but within-group disagreement is more tightly related to trading volume than cross-group disagreement. Although both sources of disagreement are important, our findings suggest that information differences are more important for trading than differences across market approaches.

Abstract. Early life exposure to local financial institutions increases household financial inclusion and leads to long-term improvements in consumer credit outcomes. We identify the effect of local financial markets using Congressional legislation that led to unintended differences in financial market development across Native American reservations. Individuals from financially underdeveloped reservations enter consumer credit markets later, and upon reaching adulthood, have ten point lower credit scores and four percentage point more delinquent accounts. These effects are long-lived and depreciate slowly after individuals move to more developed areas. Formative exposures to local banking improve consumer credit behavior by increasing financial literacy and financial trust.

Abstract. This paper provides novel evidence that stronger contract enforcement mitigates holdup in business investment decisions using stark, externally imposed variation in contract enforcement across Native American reservations. My tests focus on the golf course industry. A high degree of sunk costs and long investment horizons in this industry make it naturally subject to the classical holdup problem. I find that state courts, which provide stronger contract enforcement than do tribal courts, lead to at least 27% more golf courses, with greater effects in areas with greater natural amenities. These findings suggest that courts play an important role in facilitating the oft-discussed contractual solutions to the holdup problem.

Abstract. Prize-linked savings (PLS) accounts, which allocate interest using lottery payments rather than fixed interest, encourage savings by appealing to households’ gambling preferences. I introduce new data on casino cash withdrawals to measure gambling, and examine how individual gambling expenditures respond to the introduction of PLS in Nebraska using a difference-in-differences design. After PLS is introduced, individuals who live in counties that offer PLS reduce gambling by at least 3% more than unaffected individuals. The substitution effect is stronger in low-frills gambling environments, which most resemble PLS, indicating that these accounts fulfill the desire to gamble.

Abstract. Using new data on entry plans into the American casino industry, I find that incumbent firms invest in physical capacity when threatened with a nearby entry plan, and these strategic investments deter eventual entry. Consistent with an entry-deterrence motive, incumbents respond to the threat of entry when entry is uncertain, but not when entry is assured. The average capacity expansion of 2,300 square feet is associated with a 6.8-percentage-point greater likelihood that the entry plan fails. These findings show that investments in deterrence are viable, especially when new entrants face other significant barriers to entry.

Abstract. This paper provides novel evidence on the real and financial market effects of legal institutions. Our analysis exploits persistent and externally imposed differences in court enforcement that arose when the U.S. Congress assigned state courts to adjudicate contracts on a subset of Native American reservations. Using area-specific data on small business lending, we find that reservations assigned to state courts, which enforce contracts more predictably than tribal courts, have stronger credit markets. Moreover, the law-driven component of credit market development is associated with significantly higher per capita income, with stronger effects in sectors that depend more on external financing.

Abstract. We show that court enforcement uncertainty hinders economic development using sharp variation in judiciaries across Native American reservations in the United States. Congressional legislation passed in 1953 assigned state courts the authority to resolve civil disputes on a subset of reservations, while tribal courts retained authority on unaffected reservations. Although affected and unaffected reservations had similar economic conditions when the law passed, reservations under state courts experienced significantly greater long-run growth. When we examine the distribution of incomes across reservations, the average difference in development is due to the lower incomes of the most impoverished reservations with tribal courts. We show that the relative under-development of reservations with tribal courts is driven by reservations with the most uncertainty in court enforcement.

Abstract. This paper empirically investigates the effect of leverage on strategic preemption. Using new data on entry plans and incumbent investments from the American casino industry, I find that high leverage prevents incumbents from responding to entry threats. Facing the same set of entry plans, low-leverage incumbents expand physical capacity (by 30%), whereas high-leverage incumbents do not. This difference in investment matters because capacity installations preempt eventual entry. Stock market reactions to withdrawn plans imply that effective preemption increases incumbent firm value by 5%. My findings suggest that leverage matters for industry composition, not just firm-level investment.

Abstract. We provide new estimates of merger value creation by exploiting revealed preferences of merging banks within a matching market framework. We find that merger value arises from cost efficiencies in overlapping markets, relaxing of regulation, and network effects exhibited by the acquirer-target matching. Beyond our findings, the revealed preference method has notable advantages that warrant its application beyond the bank merger market. Notably, we show that the method outperforms reduced form alternatives out of sample, enables sensible counterfactual experiments, and can be used to evaluate private-to-private mergers, which have been understudied because of lack of stock market data.

Abstract. This paper empirically investigates the institutional determinants of whether a tribal government invests in a casino. I find that the presence of Indian casinos is strongly related to plausibly exogenous variation in reservations’ legal and political institutions. Tribal governments that can negotiate gaming compacts with multiple state governments, because tribal lands span state borders, had more than twice the estimated probability (.77 versus .32) of operating an Indian casino in 1999. Tribal governments of reservations where contracts are adjudicated in state courts, rather than tribal courts, have more than twice the estimated probability (.76 versus .34) of investing in an Indian casino, ceteris paribus. These findings suggest that states’ political pressures and predictable judiciaries affect incentives to invest in casinos. This study contributes, more generally, to the empirical literature on the effects of institutions by providing new evidence that low-cost contracting is important for taking advantage of substantial investment opportunities.