The Impact Of Social Media Sentiment On Herd Behavior In The Stock Market

Investors rely on social media content to make investment decisions,and the sentimental signals conveyed by social media information will have a certain impact on their psychology,which in turn will guide their herd behavior in the financial market then impact the stock market.But not all herding will adversely affect the stock market.Irrational herd behavior will reduce the information transparency of the capital market,severely impair asset allocation efficiency,which is not conducive to the stable operation of the market.On the contrary,rational herd behavior will accelerate the transmission of market information and increase the rate of stock price assimilation of information.However,there are few researches neither on the relationship between social media sentiment and herd behavior in the stock market nor on the identification of herd behavior.Therefore,studying whether social media sentiment can affect herd behavior in the stock market and whether the affected herd behavior is irrational yield important theoretical value and practical significance.The constituent stocks of the SSE 50 are used as the research sample,and the report about SSE 50 on Sina Weibo is used as the research data.Applying SVM,LSTM and BERT algorithm to extract sentiment from the irregular user-generated content,this research aims to construct social media sentiment and explore the impact of it on herd behavior according to CADS model.The empirical results show that the sentimental intensity of social media can exacerbate herd behavior in the stock market,and the affected herding is irrational.Furthermore,the degree of social media credibility will also cause differentiated effects on irrational herd behavior.Social media credibility can be deconstructed into authority and influence,with the channel officialness and the number of account fans as proxy variables,respectively.Research has found that official social media posts are relatively neutral and are not easy to affect irrational herd behavior,while unofficial posts on social media will reduce the degree of bounded rationality of investors.What’s more interesting is that unofficial social media postings with a larger number of fans are more likely to affect irrational herding,but there is a certain threshold for this effect.This research is an in-depth exploration of the relationship between social media sentiment and herd behavior.The theoretical research and empirical results can make contributions to investors’ understanding and application of the mechanism of microblog public opinion sentiment,in addition,it has important application value for rationally supervising the main body of publishing and guiding public opinion.