Essays on Information in Finance

In the first paper I investigate how firms' disclosure strategies shape the relationship between information disseminated on social media and stock returns. After constructing a novel and comprehensive dataset of over 7 million tweets posted by S&P 1500 firms, I adopt text analysis methods and find that firms with negative earnings surprises have higher announcement returns when they tweet about financial news, despite being ex-ante less likely to tweet about it. Further, I nd that rms which tweet about financial news have less short run autocorrelation in returns and higher demand for information from investors. The second paper is a joint work with M. J. Arteaga-Garavito, M. M. Croce, and P. Farroni. We quantify the exposure of major financial markets to news shocks about global contagion risk accounting for local epidemic conditions. For a wide cross section of countries, we construct a novel data set comprising (i) announcements related to COVID19, and (ii) high-frequency data on epidemic news diffused through Twitter. Across several classes of financial assets, we provide novel empirical evidence about {financial dynamics (i) around epidemic announcements, (ii) at a daily frequency, and (iii) at an intra-daily frequency.} Formal estimations based on both contagion data and social media activity about COVID19 confirm that the market price of contagion risk is very significant. We conclude that prudential policies aimed at mitigating either global contagion or local diffusion may be extremely valuable. The third paper is a joint work with Lucia Alessi, Brunella Bruno, Elena Carletti and Katja Neugebauer. We analyze the determinants of coverage ratios and their components (NPLs and loss loan reserves) in a large sample of European banks. We find that bank-specific factors, and in particular credit risk variables including forward-looking indicators, matter the most. We also uncover that coverage ratios do not adjust sufficiently when asset quality deteriorates but that high-NPL banks tend to be relatively better covered. At the country level, specific macroprudential levers as well as developing NPL secondary markets enhance bank coverage policy. Our findings emphasize the importance of micro prudential oversight and call for more stringent macro policies in high-NPL countries.