When hedge funds meet twitter: does voluntary disclosure of portfolio stocks matter?

Abstract

After the lifting of the “general solicitation” ban in 2012, hedge funds have started using social media to make disclosures about selected stocks. I examine whether hedge funds use stock tweets to signal their superior stock-picking ability to attract investors. While there is no evidence of hedge funds’ predictive ability for tweeted stocks in general, I find that tweeted portfolio stocks with positive mentions earn positive and significant abnormal returns up to twelve months from the tweeting quarter. Moreover, I find that the abnormal returns for tweeted portfolio stocks are higher relative to those of the fund’s non-tweeted portfolio stocks. Thus, hedge funds appear to be “cherry-picking” portfolio stocks that are expected to perform well to include in their tweets. I further find that funds attract more flows from investors when they tweet, consistent with investors perceiving tweeting hedge funds to be of high quality. In contrast with the superior performance of the tweeted portfolio stocks, tweeting hedge funds’ overall fund performance does not improve after the tweet, so that investors’ expectation about the tweeting fund’s quality is not realized.