Social Media And Stock Market Essay

2198 Words5 Pages

Social media is a revolution, which we are currently experiencing. It has changed the way people communicate and interact with one another, and opens up many more avenues to share news, information, and just general chit chat. Social media is relatively quiet young, but is here to stay for the foreseeable future. We are now at a point where online, we can share, read and react to lots of individual information being posted on microblogging websites, such as Twitter, Facebook, Google+, Tumblr and more. Twitter in particular has been widely embraced, and will centre most of the discussion.
The stock market is inherently a large and vital part of economy, which can be used to earn profit by investing or speculating. If there was a relationship to be identified between the activity on Twitter and stock market characteristics, a trading strategy could be formulated to earn abnormal returns. The question I will be looking at discussing is whether relationships exist between activity on social media and the stock market, whether that is returns, volatility, trading volumes or another characteristic, and then looking towards using these to a prediction tool. To do this, I will be looking at empirical analysis and theories from financial papers, published in academic journals.
There are many studies that examine the direct relationship between news, information and activity online and the subsequent market characteristic. However, I have selected a sample of papers to look at, some of which look at the financial theory behind the stock market, and then several which look at the sentiments which can be extracted from Twitter and online sources and then tested to see if there are any significant relationships present, which could be then use...

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...e predictive qualities, used in the box office revenues study, S Asur, BA Huberman (2010), is a definite sign that there is potential in analysing the mass of data within social media, and use it to predict future outcomes. There is the idealism that if everyone invests in the same asset or security looking for positive returns, it is a self-fulfilling prophecy in that the price will increase. In the same respect if everyone is sharing and spreading the information repeatedly. I believe we definitely could use the data that can be mined from Twitter, for predictive measures. Even though several of the studies looked at, analyse the data after the events, if further analysis was to happen, potentially looking to extrapolate the relationships, and using differentiation, to find the reactions as the sentiments change on Twitter; it could be used in a predictive manner.

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