Sentiment Divergence and its Impact on Share Liquidity

This research examines the impact of divergent investor sentiment derived from tweets and news media content on a firm's share liquidity. The study analyzes a sample of 1,945 publicly traded US firms from January 2015 to April 2021. Utilizing daily Amihud illiquidity, bid-ask spread, and share turnover as liquidity proxies, the study’s results reveal a positive relationship between divergent sentiment and share liquidity. Interestingly, this effect was found to be more potent during the COVID-19 pandemic period. Moreover, the study presents mixed evidence suggesting that the effect of divergent sentiment on share liquidity is heightened during periods of increased investor attention. This study contributes to our understanding of how investor sentiment influences financial markets, particularly by highlighting the role of sentiment divergence in shaping share liquidity.

Keywords : Behavioral Finance; Disagreement; Sentiment; Stock Liquidity