Emojis and stock returns

Purpose The authors explore how the sentiment expressed by emojis in comments on stocks is associated with the stocks' subsequent returns. Design/methodology/approach By applying our own analyzer, the authors find a sentiment effect of emojis on stocks returns separately to the plain text-expressed sentiment in Reddit posts about meme stocks such as Gamestop during the Covid-19 pandemic. Findings The authors document that a one-standard deviation change in emoji sentiment magnitude measured as the quantity of positive emoji sentiment posts over the previous hour is associated with an 0.06% (annualized: 109.2%) one-hour abnormal stock return compared to a mean of 0.03% (annualized: 54.6%). If the stock exhibits a higher intra-hour volatility, a proxy for uninformed noise trading, this relation is more pronounced and even stronger compared to stock return's relation to plain text sentiment. Research limitations/implications The authors are not able to show causation that is open to future research. It also remains an open question how emojis impact market price efficiency. Practical implications Emojis are positively related to stock returns in addition to plain text-expressed content if they are discussed heavily by retail investors in Internet boards such as Reddit. Social implications Shared emotions expressed by emojis might have an influence on how disconnected individuals make homogeneous decisions. This argument might explain our found relation of emojis and stock returns. Originality/value So, the study findings provide empirical evidence that emojis in Reddit posts convey information on future short-term stocks returns distinct from information expressed in plain text, in the case of volatile stocks, with a higher magnitude.