1. Introduction

Currently, social media has been deeply embedded in the financial market. The rise of social media has completely broken the traditional pattern of information dissemination. Social media platforms such as Weibo, WeChat, Stock Bar, and financial forums have become a hub for massive financial information due to their openness, immediacy, and strong interactivity. No matter where investors are or the size of their funds, they can access financial information from around the world in near real-time, sharing investment perspectives and experiences. This change has brought new hope for alleviating information asymmetry in financial markets. However, the complexity and disorder of social media also present a dual nature. On the one hand, a large amount of unfiltered and unverified information spreads rapidly on the platform, including false news, rumors, and misleading statements, which can easily interfere with investors. On the other hand, the recommendation mechanism of social media algorithms may lead investors into an "information cocoon", reinforcing their own biases and exacerbating the uneven distribution of information. In recent years, financial regulatory policies have continuously emphasized the importance of information disclosure. This study examines the effect of social media on information asymmetry in financial markets through the utilization of financial market data and the exploration of real - world case examples. In this context, in-depth research on the impact of social media on information asymmetry in financial markets can help expand the theory of information dissemination in financial markets and improve research on information asymmetry to provide a scientific basis for regulatory authorities to formulate reasonable regulatory policies, financial institutions to optimize services, and investors to improve decision-making quality, thereby promoting the fair and efficient operation of the financial market.

2. Literature review

2.1. The characteristics of information dissemination in financial markets through social media

With the popularity of social media, its influence in the field of financial information dissemination has become increasingly prominent. Many scholars point out that social media has broken the time and space constraints of traditional financial information dissemination, with information spreading at an extremely fast speed, allowing information to spread at an extremely fast speed across the global financial market in an instant [1]. Its wide reach covers investors from different regions and levels, achieving multi-directional flow of information, allowing ordinary investors to easily participate in information dissemination and discussion [2]. However, this mode of dissemination also leads to uneven quality of information, with the mixing of false and misleading information, increasing the difficulty of information filtering [3].

Table 1: Views and times of federal reserve rate decisions on traditional and social media

Table 1 shows that during the period of the Federal Reserve's interest rate decision announcement, within 15 minutes of the announcement on social media platforms, the popularity of related topics rapidly increased, with a search volume of 5 million times, becoming the top spot on the platform's real-time hot search list. During this period, over 5000 new comments were posted every minute, and the information spread to users in multiple time zones around the world. However, within one hour after the release of the interest rate resolution report by traditional news media, the website has 500000 views and less than 50000 interactions (comments, shares, etc.). Social media far exceeds traditional media in terms of information dissemination speed and shows an exponential growth trend, which greatly changes the pattern of information dissemination in financial markets.

2.2. The impact of social media on information asymmetry in financial markets

Some studies suggest that social media has enriched information channels, enabling investors to access more heterogeneous information, weakening the information advantage of professional financial institutions and large investors, and to some extent alleviating information asymmetry [4]. Through social media communication and sharing, investors can understand the dynamics of financial markets from multiple perspectives, enhancing their grasp of market information.

However, some scholars hold opposing views. The blind and emotional nature of information dissemination on social media can lead to information distortion. Research has found that the spread of false financial information on social media is faster and broader than that of real information [5]. Moreover, information advantage groups can better utilize social media to reinforce their own advantages, further widening the information gap between them and ordinary investors, and exacerbating market information asymmetry [6].

2.3. Cases study

First, social media aggravates the dissemination of false information and misleads investment decisions. During the short squeeze of Gamestop stock in 2021, many users on the Wallstreetbets subreddit actively promoted the purchase of Gamestop stock, creating an atmosphere in which the stock was seriously undervalued and was destined to appreciate. Many investors who did not get enough information were affected and bought the stock. According to statistics, in January 2021, Gamestop's share price soared from about $17 to a high of $483, and then fell significantly. Many ordinary investors who bought at high prices suffered heavy losses. In addition, a 360 digital survey showed that 30.22% of respondents admitted to being victims of investment traps or scams, of which 53.61% claimed that they had encountered financial scams on social media, highlighting the seriousness of misleading information on social media for investment.

Second, the information overload problem of social media makes it difficult for investors to screen effective information. The "2020 wealth health index of China's new rich class" jointly released by Jiaxin Wealth Management and Shanghai Institute of Advanced Finance pointed out that when making financial investments, the richness of information on social media may prevent the new rich class from focusing on their long-term financial goals. In the era of social media, information dissemination is extremely fast and large. Platforms such as microblogs generate billions of financial-related content every day. Investors find it difficult to quickly and accurately select valuable information from a large amount of information, resulting in a decline in the quality of investment decisions.

Third, the guidance of opinion leaders on social media has led investors to blindly follow suit. In a study conducted by Raymond James, an American financial services company, in March 2019, it was found that more than 40% of investors who thought they were "budget conscious" said that their emotions had a significant impact on investment decisions, and about 45% of respondents pointed out that news headlines were an important factor affecting their investment decisions. On the social media platform in the financial market, some influential financial bloggers and analysts have a large number of followers. For example, after a well-known financial blogger strongly recommended a stock on social media, his fans bought a large number of it in a short time, resulting in abnormal fluctuations in the stock price. Many investors do not invest based on their own research on the fundamentals of stocks, but blindly follow the views of opinion leaders.

Fourth, the spread of one-sided information on social media distorts market cognition. In 2024, a new energy vehicle company triggered a heated discussion on social media because of a video of a vehicle on fire. Many social media users widely forwarded and commented without knowing the real cause of the fire (possibly due to collision rather than vehicle quality problems), which had a significant negative impact on the company's image. The company's share price fell sharply in a few days. But it was not until the results of the follow-up survey were released that the share price gradually stabilized. The one sidedness of social media information dissemination has seriously distorted investors' understanding of the company's market, while insiders with comprehensive information and interested parties who know the progress of the investigation in advance are in an information dominant position, aggravating information asymmetry.

3. The impact of social media on investor behavior and market efficiency

3.1. Investor behavior

Social media has altered the decision-making patterns of investors, who are susceptible to the opinions and emotions of others on social media, leading to herding behavior [7]. Information overload and noise interfere with investors' rational judgment, causing decision-making biases [8].

First, in terms of information access tendency, investors increasingly rely on social media to obtain financial information. A survey of 1000 individual investors found that more than 60% of investors get financial information at least once a day through social media platforms such as microblog and snowball. According to the 2020 wealth health index of the new rich in China jointly released by Jiaxin Wealth Management and Shanghai Institute of Advanced Finance, social media accounts for 35% of the new rich's access to investment information.

Secondly, in terms of the trend that investors' decisions follow, investors' investment decisions are influenced by social media, opinion leaders and group discourse. In a study conducted by Raymond, an American financial services company, in March 2019, about 45% of respondents said that news headlines (social media is an important communication channel) are an important factor affecting their investment decisions. In a popular stock discussion community, when a well-known blogger strongly recommended a stock, the trading volume of the stock increased by 80% month on month in the following week, and a large number of new investors followed suit.

In addition, in terms of emotional driving, investors make emotional investment decisions based on social media emotions. During the 2020 pandemic, emotional analysis was conducted on one million tweets related to the stock market on Twitter. The results showed that when the proportion of negative emotional tweets exceeded 60%, the S&P 500 index fell by an average of 3% in the next three trading days. Research on China's microblog financial topics shows that the probability of the corresponding stock price falling is more than 70% after a week of rising negative sentiment on stock related topics on social media.

3.2. Market efficiency

Regarding market efficiency, the complex impact of social media on information asymmetry has led to a debate on its role in market efficiency. If social media can effectively reduce information asymmetry, it will promote the timely reflection of information in market prices, enhancing market efficiency; however, if it exacerbates information asymmetry, it can lead to market price distortions, reducing market efficiency [9].

On the one hand, social media has accelerated the dissemination of information, leading to rapid response of stock prices. In 2021, when the Gamestop stock was short circuited, discussions broke out in the wallstreetbets section of the reddit forum, and the stock price of Gamestop rose as high as 103% in one day's trading. According to statistics, within 5 minutes after the release of major financial news on social media, the prices of relevant stocks began to fluctuate significantly, while it took an average of 15 minutes for traditional media to trigger stock price fluctuations.

On the other hand, social media information has triggered excessive market volatility. During the US stock market meltdown in 2020, the number of tweets on Twitter about stock market panic increased by 500% in the week before the meltdown, while the S&P 500 index fell by 20% in the same period. A study on the A-share market from 2015 to 2024 found that within a week when the popularity of stock related topics on social media increased significantly, the volatility of stock prices increased by an average of 30%.

4. Discussion

The aim of this article is to explore the impact of social media on information asymmetry in financial markets, and the results generally meet the research expectations. Using relevant data and case studies, it is shown that although social media speeds up and broadens the spread of information, issues like complicated information and varying skills among investors make information asymmetry worse, which aligns well with what was anticipated.

This research provides valuable references for investors, regulatory agencies, and market participants. Investors can enhance their information filtering ability and optimize their investment decisions based on conclusions; regulatory agencies can strengthen the supervision of social media financial information and maintain market stability based on this; market participants can also more accurately grasp market dynamics.

However, this study also has certain limitations. On the one hand, there are limitations in data acquisition, which only covers some mainstream social media platforms and specific time periods of data, making it difficult to fully reflect all social media information ecosystems; On the other hand, it is difficult to accurately quantify the degree to which investors are influenced by social media, with large individual differences and numerous influencing factors. However, the advantages of this study are also quite prominent. It systematically analyzes the impact of the interaction between social media information quality, dissemination characteristics, and investor behavior on information asymmetry through a unique perspective; By applying interdisciplinary theories and combining knowledge from finance, communication, and behavioral studies, we have deeply analyzed the underlying mechanisms and enriched interdisciplinary research results.

Based on the above analysis, future research can be expanded from multiple aspects. One is to expand the scope of data collection to include more social media platforms and longer time spans, enhancing the universality of research; The second is to develop more scientific quantitative methods to accurately measure the impact of social media on investor decision-making; The third is to explore in depth the differential effects of different types of social media information, such as short videos, comments, etc., on information asymmetry, providing more detailed guidance for all parties in the market.

5. Conclusion

This article focuses on the impact of social media on information asymmetry in financial markets. Research has found that although social media has accelerated the dissemination of financial information, it has increased the difficulty of information identification and exacerbated information asymmetry to some extent due to the difficulty in distinguishing between true and false information and the different information processing abilities of investors.

Compared with existing research, previous studies have focused more on the impact of social media on asset prices and other aspects. This study deeply analyzes the key issue of information asymmetry, fills the relevant gap, and improves the research framework of the relationship between social media and financial markets. This research provides investors with some ideas for identifying information, helping them avoid risks and optimize investment decisions; To provide effective basis for regulatory authorities to formulate policies, assist in regulating the dissemination of financial information on social media, create a fair and stable market environment, and promote the efficient and healthy development of the financial market. However, despite author’s efforts to cover multiple social media platforms, obtaining complete social media data remains challenging due to constraints related to data access authority and technical capabilities. This is particularly true for non-public data from some platforms and information published anonymously by users, which introduces a selectivity bias in the research sample and may affect the universality of the conclusions drawn. At the same time, my collection of financial market data mostly focuses on the top market and mainstream financial products, and the coverage of niche markets and emerging financial derivatives is insufficient, which makes the research results have certain limitations in the application of a wider range of financial scenarios.