The Impact of social media sentiment on retail investor behavior in emerging markets

The rapid diffusion of social media has fundamentally altered how retail investors access, interpret, and act upon financial information, particularly in emerging markets where informal communication channels play a central role. This study examines the impact of social media sentiment on retail investor behavior in an emerging market context, with a focus on trading activity, directional decision-making, and short-term behavioral persistence. Drawing on behavioral finance and narrative-based explanations of market dynamics, the study positions social media sentiment as a socially constructed signal that shapes investor attention, belief formation, and emotional response. Using data derived from publicly accessible social media platforms alongside retail trading indicators and market-level controls, the analysis links sentiment measures directly to observable retail investor actions rather than inferring behavior solely from price movements. The results show that positive social media sentiment is associated with increased retail trading intensity and participation, while negative sentiment is linked to heightened selling pressure and reduced risk-taking. These effects are asymmetric, with negative sentiment eliciting sharper behavioral responses, consistent with loss aversion and negativity bias. The influence of sentiment is found to intensify during periods of elevated market uncertainty, suggesting that retail investors rely more heavily on collective emotional cues when traditional informational signals become ambiguous. Sentiment-driven trading exhibits short-term persistence but tends to reverse over subsequent trading days, indicating that social media sentiment contributes to temporary deviations rather than sustained mispricing. Overall, the findings highlight social media sentiment as a central behavioral driver of retail investor activity in emerging markets. The study contributes to the literature by integrating sentiment analysis with retail trading behavior and by contextualizing digital investor behavior within environments characterized by higher information asymmetry and retail dominance. The results carry implications for market stability, investor protection, and the design of regulatory and educational interventions in increasingly digitized financial markets.