Social-media & the stock price – do you see any relation?

What would you answer if someone asks you: “Social-media & the stock price – do you see any relation?”What I can already tell you is that there is something. Discover more about the influence of Twitter, Facebook and Co. on the stock exchange in the following article.A tweet or post can change peoples behavior. Believe me or not, but some researches examined this topic a little bit more in detail.

Again and again we can follow debates about the risks of social media. Mostly the discussion is about social isolation or data security, but did someone ever think about the effect of social media on the behavior of investors on the stock market? In fact, there are some signs that social media can have influence on financial decision-making.

Has Twitter influence on shares?

Vineet Bhagwat from the University of Oregon, United states, investigated together with Timothy Burch, University of Miami, on how the stock prices of companies, that are active on Twitter, behave after news about their profits. The result:

The stock prices of companies that are active on Twitter increased faster after news about a positive profit. As well as after bad news the shares recuperated faster in contrast to companies that are not active on Twitter. One possible reason for this from the point of view of the researchers is the attention these companies get from Twitter. On the one hand is the social network an ideal platform to show your successes. On the other hand it gives the possibility to explain your results if they are bad.

Some possible factors of influence

Every day people are confronted with a torrent of news. According to Florian Zimmermann, behavioral economist of the University Bonn, Germany,  can all these pieces of information not be considered independently of each other. If for example a press agency publishes a positive growth forecast, the media  immediately creates a lot of news with this optimistic prognosis. And in the view of Zimmermann it is the same with online news. So, all the tweets that are repeated could be quite often just a modification of news that is already known. If this is the case, it could come to loss-making financial decisions for the shares, if the investor does not know the origin of the Tweets and trusts too much in them.

Another influence factor could be the choice of friends in social networks. As described by Cass Sunstein from the Harvard Law School, United States, people tend to connect to people they are friends with and that are quite similar to them. This could create a kind of group thinking. As the connections are of the same opinion, they quite often trust too much in them. Adapted to social media, the posts of friends can influence the objective view of a person.

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For social media it helps – like for other media – to have a critical view!

Your own decision can be influenced by a lot of tendencies that you might not be aware of. That is  why information of, in our case, posts or tweets should always be viewed in context.

Content from ING DiBa – Wissenswert

https://www.ing-diba.de/ueber-uns/wissenswert/einfluss-social-media-auf-aktien/

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