Can Facebook Predict Stock Market Activity?

Abstract

Using a novel and direct measure of investor sentiment, I find that Facebook’s Gross National Happiness (GNH) has the ability to predict changes both in daily returns and trading volume in the US equity market. For instance, a one standard deviation increase in GNH predicts an increase in market returns equal to 11 basis points over the next day. Moreover, the impact of GNH appears to be stronger among small-cap stocks, and in the face of turmoil.