Social media has radically changed the stock market landscape, and it influences investor sentiment and trends in many ways. This article will explore the information flux between social media and stock market prices, the impact of influencers on the trend, and the role of regulation in this dynamic.
It is essential to approach social media-driven investment opportunities with caution. Comprehensive research, critical thinking and guidance from expert sources can help you make informed investments that align with your financial goals.
Information spread on social media is a powerful tool that can change the beliefs of thousands, if not millions of people. Unfortunately, this power can also lead to false information and misinformation. Getting a handle on how information spreads is critical for curbing the effects of social media on society.
While many experts agree that the information spread on social media is not always accurate, they also note that the public’s shift from more-traditional mainstream news outlets that had ethical standards to social news feeds has led to an increase in reliance on these sources. This has made them the field of choice for manipulative narratives that are packaged to look like news headlines. A recent study by Emilio Ferrara and Zeyao Yang, researchers from OSoMe, used a simulation to demonstrate how these narratives spread on social media.
Influencers are people who have a significant following on social media and have established credibility and authority in a realm. They can set trends and influence buying decisions. They can also monetize their online authority by collaborating with brands. They can promote products or services on their social channels and blog posts, write product reviews, or create YouTube videos.
Several studies have found that social media data reflect collective investor attention and sentiments in real time, which can be used to predict stock performance. For example, Sul et al. construct public anxiety indices from Twitter feeds and find that they are predictive of stock returns.
Their results also demonstrate that the digital intensity of firms mitigates the negative impact of largescale unanticipated incidents on their stock performance. This finding supports the theory that the more advanced a firm is, the more resilient it will be in a crisis.
Investor sentiments are influenced by a wide range of factors including economic reports, global events and the media. Investor sentiment can also be influenced by the actions of others, such as when a company’s CEO tweets negative opinions about the market or their competitor’s products.
This research uses cumulative social media postings about COVID-19 and stock market performance to examine how investors react to unexpected incidents. The results show that cumulative investor sentiment indices derived from social media feeds are correlated to stock market performance.
Further analysis reveals that a time lagged correlation between relative returns and CEO Twitter sentiment shows that price movements drive Twitter activity. In addition, it is shown that high investor sentiment correlates with increased idiosyncratic return volatility and trading volume per share.
Various studies have shown that social media is an important source of investor sentiments and can influence stock price trends. For example, Twitter posts by rogue CEOs can damage companies and cause stock prices to fall. Similarly, tweets by world leaders can cause political uncertainty that impacts the value of stocks.
The 2019 novel Coronavirus outbreak has attracted global attention and sparked fears that led to a stock market crash. However, the impact of largescale unanticipated incidents on stock performance is not yet well understood. This paper uses daily cumulative Twitter postings on COVID-19 and stock price data to investigate how critical incidents influence investors’ collective attention. Furthermore, we use augmented vector autoregressive models to model the relationship between stock prices and sectoral digital intensity. The findings show that firms with high digital intensity mitigate the negative impact of market sentiments induced by largescale unanticipated incidents on stock performances.
Many studies have explored the impact of social media on stock market trends. Some researchers have analyzed the correlation between tweets by CEOs of listed companies and their stock prices. Other researchers have analyzed whether Twitter posts about the latest news or current events are predictive of stock prices.
Taking inspiration from Baudrillard’s concept of hyperreality, this paper explores the relationships between emotions and social media in a particular emergency context – the outbreak of 2019 novel Coronavirus disease (COVID-19). The results show that cumulative social media postings on COVID-19 are predictive of stock performance.
The analysis also reveals that digital intensity mitigates the adverse effect of market sentiments induced by largescale unanticipated events. Sectors with the highest digital intensity outperformed those with the lowest digital intensity under COVID-19.