Industry Survey on the Impact of Social Media on Financial Markets

Commentary on social media outlets has reached peak levels. This year marks the seventh anniversary of Twitter and tweet volume now exceeds 400 million messages per day. Social media steps over traditional outlets to offer faster news delivery sprinkled with opinions, commentary and perspectives on business activity and political events. One glaring example was the public outrage over Rolling Stone’s now infamous choice for a cover photo.  If Werner Media  the publisher of Rolling Stone magazine was a publicly traded company their stock price would have plummeted following the social media berating heaped upon them. Who knows, it might have been known as the Bash Crash.

Social Media has challenged traditional publications as the future of information dissemination. The information flow is not directly targeted at reporting a news story in the classic sense but artistic license to portray an emotion, the global psyche from the voices of millions. 

Leveraging twitter or other social media sources for economic and company information to gain actionable insight has begun to accelerate.  The idea of trading based non-traditional information is not new, but using twitter or other social media sources of economic and business information has piqued beyond mere curiosity. There were a few pioneers who made a bold attempt to filter and trade on social media sentiment, yet only the unsuccessful make the headlines.  The market impact following a fake tweet from a malicious hack into the Associated Press (AP) Twitter account bears witness to the increasing influence of social media on financial markets.  Providing the evidence that social media is more than chatter about nothing.

Yet the unknown is just how strongly social media impacts the financial markets and who is using it? The unabashed commentary suggests automated trading ran wild following the Hash Crash causing the 145 point decline in the Dow that same day. Such accusations are wild speculation at best, unfounded by empirical evidence.  It is just as likely that the human emotional response to the malicious act notoriously described in the fake tweet caused the market pull back. Yet it is decidedly difficult to know.

Who better to answer these engaging questions than the market participants themselves, those actively seeking to discover and exploit new market inefficiencies. To that end, OneMarketData decided to solicit input from industry participants on their use of social media for trading and investment decision making. We are in the data management and analytics business for quantitative finance, therefore we have a vested interest in understanding how social media fits in. Conducting a question and answer survey we have compiled the resulting statistics into the collective wisdom from participants across the global financial centers. The report looks to answer the question, “Is Social Media a Disruptive Force in Financial Markets?”  You can download the survey report here.

Social media, especially Twitter, transcends the old news agency reporting model. It renders artistic license to portray individual opinions, perspectives and commentary on events across the globe. It is a ‘new frontier’ and we are on the cusp, the tip of the iceberg of increasing our understanding of the human state of mind on a more global scale yet at an intimate level.  The yet-to-be-answered question is whether this will translate into actionable business insight.

Combining or correlating social media with traditional market data analytics and quantitative techniques creates enormous potential in understanding the dynamic nature of what makes markets behave and is a huge step towards that elusive holy grail of accurate predictive modeling. At this point, the new frontier of social media is just a set of raw materials waiting to be assembled, yet the possibilities are intriguing.

The survey report can be downloaded here.

Once again thanks for reading.
Louis Lovas

For an occasional opinion or commentary on technology in Capital Markets you can follow me on  twitter, here.

About Louis Lovas

Director of Solutions, OneMarketData, with over 20 years of experience in developing cutting edge solutions and a leading voice in technology and trends in the Capital Markets industry.
This entry was posted in Algorithmic Trading, Analytics, Big Data, Complex Event Processing, Equities, Foreign Exchange, Futures and Options, HFT, HFT Regulation, High Frequency Trading, OneMarketData, OneQuantData, OneTick, Tick database. Bookmark the permalink.

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