Social Media Toxicity and Capital Markets
Abstract
This paper examines the existence, drivers, and implications of toxic content in financial social media. Using state-of-the-art machine learning algorithms to measure toxicity on Seeking Alpha, we find persistent toxicity primarily in the comments rather than articles, with over 50% of firms on the platform experiencing toxicity in recent years. Comment toxicity is greater for firms with more investor attention and disagreement, and for those led by female CEOs. We find three key results. First, toxicity displays a feedback loop in platform participation: past toxicity predicts more future toxic contributors for a given firm. Second, firms receiving more toxic comments have greater retail trading volume but less informative retail trades. Third, toxicity is associated with slower price discovery around earnings announcements, indicating potential broader market efficiency implications. Our findings suggest financial social media toxicity influences both user behavior and market outcomes, raising important considerations for platform governance in financial markets.