Social media-based implosion of Silicon Valley Bank and its domino effect on bank stock indices: evidence from advanced machine and deep learning algorithms

Social media-driven speculations play a crucial role in triggering the collapse of the banking system and stock markets. In this paper, we investigate the effect of Twitter-based investor sentiment on the collapse of Silicon Valley Bank (SVB), the 16th largest bank in the US. Additionally, we examine the spillover effect of the social media-based investor sentiment and SVB collapse on the bank stock indices from twelve countries where Global Systemically Important Banks (G-SIBs) operate. Advanced machine and deep learning models are employed to model the social media-based investors’ sentiment regarding SVB implosion and its spillover effect on the G-SIBs’ bank stock indices. Our results reveal that social media-based negative investors’ sentiment played an important role in SVB implosion. Our results further show that the negative investors’ sentiment persisted, and its systemic shock was transmitted to the G-SIBs bank stock indices. Importantly, our results provide a lead and lag relationship between investors’ sentiment and returns of G-SIBs bank stock indices. The findings of this study offer crucial insights for policymakers to consider the external shocks associated with social media-based investors’ sentiment when devising policies related to bank runs, thus helping to prevent future financial crises and cross-border contagion.