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Measuring the effect of investor sentiment on liquidity

Lee M. Dunham (Heider College of Business, Creighton University, Omaha, Nebraska, USA)
John Garcia (Toulouse Graduate School, University of North Texas, Denton, Texas, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 24 April 2020

Issue publication date: 12 January 2021



The purpose of this paper is to examine the effect of firm-level investor sentiment on a firm's share liquidity.


The authors use Bloomberg's firm-level, daily investor sentiment scores derived from firm-level news and Twitter content in a regression model to explain the variability in a firm's share liquidity.


The results indicate that improvements (deterioration) in investor sentiment derived solely from Twitter content lead to a decrease (increase) in the average firm's share liquidity. Results, although not as strong, are opposite for investor sentiment derived solely from news articles: improvements (deterioration) in news sentiment leads to an increase (decrease) in the average firm's share liquidity.

Research limitations/implications

The proxy for share liquidity is the bid-ask spread, which may be an imperfect measure of liquidity. The Amihud illiquidity measure was used as an alternative proxy and yield similar results. The results have important implications for investors in assessing the determinants of share liquidity.

Practical implications

The sample period covers four years (2015–2018), which is determined by the availability of the Bloomberg sentiment data.

Social implications

Investors increasing use of social media to express views on particular stocks and seek information that might be used in the investment decision-making process. The study links investor sentiment derived from social media (Twitter) to share liquidity.


By examining the relationship between a firm's sentiment and the firm's share liquidity, this paper advances the authors' understanding of the factors that drive a firm's share liquidity. To the authors' knowledge, this is the first study to link investor sentiment derived from firm-level news and Twitter content to a firm's share liquidity.



This study was part of Dr. Garcia's dissertation while a doctoral student in the DBA program at Creighton University.


Dunham, L.M. and Garcia, J. (2021), "Measuring the effect of investor sentiment on liquidity", Managerial Finance, Vol. 47 No. 1, pp. 59-85.



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