Twitter and its relationship with returns and trading volume of European stocks

In the past, decision-making was only made based on information gathered from traditional media. However, the rise of social media has changed the relation to news. Its accessibility is more easy, fast and efficient making social media an unavoidable source of information for investors. Thus, it allows them to make better and more informed decisions thanks to an exchange of information that would have never been imagined before. This master’s thesis is set in a behavioural perspective as it tries to understand the stock market reaction towards different non-fundamental information about companies. The medium of news used in this study is the social network Twitter during a period of time from 2008 to 2018. Companies examined are part of the indexes CAC 40, AEX 25 and BEL 20 giving a European orientation to this research and distinguishing it from the previous ones. What is more, this master’s thesis investigates whether Twitter, through its volume of tweets and sentiments embedded, influences the stock market and then extends the existing literature by examining its link with the percentage of retail investors and market capitalization of companies. At the end, our results assert the explanatory power of Twitter in the European market. Indeed, the tweet volume as well as the negative opinions that can be reflected in messages are linked to stock returns. Nevertheless, our results were not consistent concerning a relationship with stock trading volume. Moreover, we report a connection between the market capitalization of companies and the Twitter activity concerning their stocks.