When the stock market slumps, social media can amplify the anxiety.

New research finds that after major market drops, investor sentiment on platforms like Twitter and StockTwits turns sharply negative and attention to market news surges. But these emotional reactions tend to fade within a few weeks. What may last longer are the effects: That short-lived wave of fear and focus can ripple through the market, influencing trading activity and stock performance even after the initial panic dies down.

To understand these dynamics, a team of University of Colorado Boulder researchers analyzed millions of posts from 2013 to 2021 on three major investor platforms: StockTwits, Seeking Alpha, and Twitter (now called X). They built two daily indexes: one to track sentiment—how much optimism people feel about the market—and another to measure attention, or how much people are talking about stocks.

“Social media is increasingly becoming a forum where investors display their sentiments in public view—it’s a natural setting to take the market’s pulse,” said Tony Cookson, professor of finance at the Leeds School of Business who co-authored the working paper.

“Sentiment captures people’s emotions,” Cookson explained. “In contrast, attention reflects investors’ focus on markets, which can be high when investors are fearful or when they are enthusiastic.”

The researchers used sentiment and attention data on Stocktwits, Seeking Alpha and Twitter posts that were scored as bullish or bearish. After aggregating these firm-level measures to the overall market level, they found that stock prices tend to rise just before high sentiment days, then typically fall over the following few weeks. In contrast, stock prices decline prior to high attention days, followed by a continuation of negative returns.

Their results have implications for investors. “When market attention is high, future returns are lower. On the flip side, after drops in sentiment, returns tend to recover,” Cookson said.

By separating sentiment and attention—two ideas often lumped together in past research—the team was able to trace how each relates to the market. Sentiment, they found, tends to overreact to bad news, reflecting emotional responses that quickly reverse. Attention, on the other hand, grows.

“There’s a clear pattern,” Cookson said. “When markets are going down, we see that sentiment stays down for a while, but then eventually recovers. Whereas attention doesn't exhibit that pattern at all. It tends to reflect yesterday's returns, but then it continues and builds.”

Both forces are closely tied to market activity. When sentiment falls or attention spikes, trading volumes tend to rise. In other words, emotional reactions and market-wide attention—both amplified during times of stress—often drive trading activity together.

“These are happening simultaneously,” Cookson said. “There’s a lot of trading when there’s a lot of negative sentiment. Those two go hand in hand—they’re capturing and reflecting bad times in the market.”

While the study doesn’t analyze recent markets specifically, it offers a blueprint for understanding how volatility ripples through investor psychology. In tests using daily spikes in the VIX index—a popular measure of expected market volatility—the researchers found a consistent pattern: When volatility jumps, sentiment drops sharply and attention surges.

That response isn’t symmetric. “We see this for sharp drops in the market—negative news—but we don’t see it for similarly sharp spikes in markets,” Cookson said. “The negative days seem to leave more of a mark in the sentiment index and the attention index.”

The asymmetry is critical. Fear reflects deeper and longer-lasting shifts in online investor mood than enthusiasm. When markets fall, social media sentiment turns negative—and stays that way for several days. Attention, meanwhile, spikes and remains elevated, showing that fear drives sustained investor focus. 

But after a market rally? Sentiment and attention barely budge.

Why does fear hit harder? “Fear spreads faster,” Cookson said. “Enthusiasm is kind of a more gradual building process. You don’t see it in the daily patterns. You see fear on display in this daily index.”

The effects don’t stay confined to a single stock. Instead, the researchers found that fear travels across firms.

“It’s not just sentiment about Apple and Tesla and Microsoft added up,” Cookson said. “It’s Apple affecting how you feel about Tesla or Microsoft.”

That emotional spillover means sentiment that spreads across the whole market is less likely to be about information and more likely to reflect emotion. “When sentiment is focused on one thing, it’s more likely to be information,” Cookson said. “When it’s spread across many things, that can’t be information—it has to be emotion.”

So what does all this mean for investors?

“In fearful times, sentiment tends to overreact—that’s something to keep in mind,” Cookson said. Meanwhile, increased investor chatter online, especially during anxious periods, often signals weaker stock returns ahead.

The old Warren Buffett dictum—“Be fearful when others are greedy, and greedy when others are fearful”—still applies, Cookson said: “Our results show how natural emotion is part of markets—it matters.”

That emotional swing can be costly. “You might be prone to getting out of the market in a way where you end up buying high and selling low,” Cookson said.

The practical takeaway? Stick to the basics.

“Diversification is usually a good idea. Timing markets is usually a folly,” he said. And be wary of the distorted lens social media can create. “Especially if you’re using social platforms like Twitter or even Seeking Alpha, you’re operating in a polarized information environment. Everything seems either good or bad—maybe it's good to fight the natural urge to act on sentiment.”