Can social media predict share price movmements??!

[rimmy2000]

I read a really interesting article earlier today and thought I would put down a few thoughts.

 

It seems that social media - specifically Twitter - is being used more and more by investors to discuss the stock market. Everyone is familiar with Hashtags: e.g. #MyDogAteMyHomework or something along those lines! 

 

However a new variant of hashtag is being/has been created and these are known as Cashtags. That's right, tags that relate back to a stock, or more specifically, its ticker code (EPIC Exchange Price Interchange Code, btw) So here in the UK we use Cashtags like: £NXR for Norcros, or £VOD for Vodafone, prefixing the tag with a £ sign. In the USA stocks are commonly prefixed with the dollar ($) sign, so for instance $FB or $TWTR (Facebook and Twitter, that is)

 

Now what has happened is some researchers have pulled together a load of these so-called Cashtags, and analysed them and their content to ascertain if the overall message was Bullish: (BUY $TWTR) or Bearish: (sell £DTY)

 

From pouring over this information they determined that stocks that were tweeted about more bullishly did correspond to an increase in the stocks share price in subsequent days, and the converse was true also. The logic then follows that algorithms or professionals could then begin to use this data to obtain an edge in the market by acting according to the information that is in the Twitter-sphere.  Additionally they correlated that stocks of which there was a lot of opposing views on social media (ie disagreement) led to much higher trading volumes as the shares were bought up and sold off more.

 

I include a quote here "To test if these findings could be the basis for a profitable trading strategy, the researchers ran a simulation using the information from the study and found that, even taking transaction costs into account, the simulated returns beat the market."

 

So there you have it!

 

Well, actually, a more level-headed quote from Brokers Hargreaves Lansdown are more skeptical over the matter. and again I quote:
"“This is far from a tried and tested strategy and on the face of it looks like a recipe for disaster,” warns Laith Khalaf, senior analyst at Hargreaves Lansdown. "

 

So there we are. I will leave it for you to decide the material influence this effect has on stocks. 

If you wanted to read the article, btw, it is here 

Can Twitter tell you how to invest?

 

 

Thoughts and comment welcomed.

[rimmy2000]

Here is the results of those cashtags by the way!

$TWTR Twitter

£DTY Dignity

[phillo]

I am aware of some "trading sites" that monitor social media. Obviously "Stocktwits" has a "trending" list & "Trade Ideas" also has a stock screener for it- there must be more

[phillo]

I guess people see the activity & "jump in"   -         FOMO

[phillo]

[phillo]

haha           #FTSE 100 stocks are so boring, does anyone activity tweet about them?

[rimmy2000]

, I think you have mis-interpreted what the article is saying. The suggestion is not that 'a group of small investors are moving share prices by tweeting about them' 

 

The point being made is that there is an apparent positive correlation between a stocks tweet activity and its share price. its an important difference.

 

The article is not stating: small investors tweet about a share and in turn that raises its price.

[rimmy2000]

---

wrote:

, articles like those can be mis-interpreted by many people differently. 

 

 

[waffle]

 

What are your thoughts  on the article? Would you use such information in your decision making?

---

The full paper is available here but is chargeable: https://link.springer.com/article/10.1057%2Fs41265-016-0034-2