How does social media shape stock liquidity? The role of investor online communication networks

Stocks are embedded within a network of digital connections that arises from the online communication of investors on social media platforms. This paper aims to investigate how the centrality of this network impacts the stock liquidity. Using user-generated text data from the Eastmoney forum, we find that the network centrality can enhance stock liquidity. This enhancement may be achieved through improving firm information transparency and attracting investor attention. Additionally, this positive impact is more pronounced when the network is constructed using higher-quality and more optimistic text. Finally, we document that the structure of this investor online communication network can also significantly drive liquidity spillovers. Overall, our results provide new insights into the network relationships between stocks and highlight the role of investors' online communication on social media in shaping investor trading and stock liquidity dynamics.