Wisdom of Crowds or Awkward Squad? Social Interaction and the Information Efficiency of the Capital Market

Existing studies on the impact of social media on the information efficiency of capital markets have opposing views. As a core feature of social media, the role of investor interaction is often overlooked. To fill this gap, using the social network analysis (SNA) method, we examine the relationship between investor social interaction and the information efficiency of the capital market. Our findings suggest that investor communication can disseminate valuable information about listed firms in social networks when the intensity of investor interactions is low. However, when the intensity of investor interactions reaches a certain level, the noise in the market increases and the stock price discovery process is distorted. In the mechanism analysis, evidence that investor interactions can lead to emotional contagion is provided. This study provides evidence of the effectiveness of retail investors' social interactions and group irrationality, helps with an understanding of the role of social platforms, and provides new enlightenment for regulators to improve the information environment of the capital market