How Social Media Affects Stock Prices

What drives the world? Money? Wrong. Its sentiments. Emotions. In the last decade we have been handed the tool of social media to be more vocal with our feelings. The array of different platforms like Facebook, Twitter, Pinterest, Google+ and etc. have made it more easier than ever to put every individual self and his/her emotions on the world map.

Social Media Stock Prices

Social media has become a major force in advertisement and stock market. Mention of stock market shouldn’t come as a surprise. Companies are leveraging social media for their benefit thus making the relationship between it and stock market directly proportional. According to a study at Pace university, there was a direct relation between stock prices of big brands like Nike, Starbucks and their followers on social media platforms. Increased fan following is surely to convert into a positive sentiment about the brand thus driving up the stock prices. This way of interaction is benefiting customers as well as the company. More followers’ means increased stock prices that gives customers more earnings per share, and sometimes dividend too. Thus, creating a win-win situation for both sides.

Tweets from the industry bigwigs are instrumental in driving the stock prices. In 2013, it was a positive tweet by billionaire Carl Icahn that resulted in Apple prices reaching close to $500 per share. He tweeted about his favorable position on the Apple stock and that they have a large stake in it. It was just 140 characters, but coming from a billionaire, they highly affected the share price of Apple. In another case, same year the Associated Press account was hacked, and tweets mentioned an explosion at White House in which supposedly the President was hurt. Stock prices at New York Stock exchange spiraled downwards. Since then, multi-step authentication has been put in place for enhanced security.

The stock prices for Netflix increased by 16%, going from $70.45 to $81.72 when Reed Hastings, the CEO commented on Facebook about online viewing breaching the one billion hours mark.

Reed Hastings NFLX

These examples testify that as information travels faster on social media platforms, it is having a direct effect on the stock prices. In fact, the touted affect is so real that Financial Regulatory Authority is building a digital library which stocks all the data on social media communications pertaining to every company. This data can be used later for studying the stock market and developing important insights about the past trends and the likelihood of their repetition in future. Hedge Chatter has been tracking social media to predict stock market movements since 2009. Their accuracy rate is close to 60%, not very accurate.

However, we shouldn’t be skeptical of a day when social media would be an exact indicator of stock market movements. As a customer it is beneficial unless the news is planted, and misleads. As a company, it is easier for you to control your stock prices, and even manipulate your customer base.

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