Managing Your Cash Flow
A day’s worth of tweets can impact the performance of stock
4 min read
22 August 2016
Carey Business School assistant professor Jum Liew has admitted to being enamoured by the fact that social media data could highlight market behaviour – and has unveiled that a day’s worth of tweets can impact the performance of stock.
Recent history is peppered with examples of how Twitter served as a platform to boost or annihilate stock performance, suggested Liew.
Just take a look at what happened in 2013, when the Associated Press’ (AP) Twitter account posted a false message: “BREAKING: Two Explosions in the White House and Barack Obama is injured.”
While it came to light the president was unharmed and that the AP had found its account hacked, it didn’t stop £92.2bn being wiped off the Dow Jones and S&P 500 indexes value in the span of two minutes.
Similarly, Liew explained that Twitter made it possible to identify situations where tweets could “move markets.” On 30 March 2015, for example, the below tweet from Tesla founder Elon Musk resulted in an increase of the company’s capitalisation by $1bn in a few minutes.
Major new Tesla product line — not a car — will be unveiled at our Hawthorne Design Studio on Thurs 8pm, April 30
— Elon Musk (@elonmusk) March 30, 2015
Also, in a letter to Apple CEO Tim Cook that was made public by Carl Icahn in May 2015, the investor said he thought Apple was worth more than it was being valued at. It was suggested that stock increased by about $8.35bn within minutes.
It’s no surprise then that the link between Twitter and stock markets has been the focus of much debate and study. Two reports, “Tweets and Trades: The Information Content of Stock Microblogs” and “The Effects of Twitter Sentiment on Stock Price Returns“, arrived at the same conclusion: that Twitter wasn’t supposed to be used as a crystal ball. Instead, it should be viewed as a mirror reflecting current situations.
Now taking a stab at the correlation, Liew found himself with access to all StockTwits posts about 15 companies that drew the most Twitter commentary from January 2012 to October 2015: Apple, Facebook, Netflix, Yahoo, Amazon, Google, Disney, and American Airlines to name a few.
People who posted on StockTwits could state whether they were positive or negative about stock. Mining this data led to the discovery that there was “a particular intuitive relationship between tweet sentiment and prices over time. Namely, aggregated daily sentiment matters for equity daily returns. Positive sentiment is associated with positive returns.”
Liew highlighted this through the performance of Apple’s stock. He explained that between 1,000 and 2,000 StockTwits posts about Apple were made each day during the 2012-2015 period. The percentage of positive tweets about the stock stayed high from mid-2013, which corresponded to a nearly continuous increase in the stock’s price over that time.
“When Apple does well within the day, participants are tweeting with bullish sentiment, showing that a positive correlation exists between contemporaneous price movements and tweet sentiments,” Liew said.
He did acknowledge, however, that some believe the real-time status of a tweet can make it irrelevant after hours. But Liew claimed the research results beg to differ: “There appears to exist a strong positive relationship between the daily time-series of aggregated tweet sentiments and their corresponding security returns.”
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