Can social mentions influence stock prices?
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Stock
trading is a pretty advanced process now, with many traders using
algorithms to either advise them or in a rising number of cases, to
actually do the trading for them. Most of these algorithms are logical
however, in that they use hard mathematics to produce their
recommendations. Can social media sentiment analysis play a part in
this?
That's the question that the New York Stock Exchange hope to answer. They announced recently that they are teaming up with Social Market Analytics (SMA) to distribute sentiment statistics from SMAs social monitoring tool through the NYSE data feed.
The social data will offer traders
additional social data alongside their normal financial metrics. SMA's
service provides real-time analysis of social mentions in an attempt to
predict volatility in stocks and sectors via the level of social
mentions.
SMA's engine seeks to create a social
media signature, consisting of seven statistical indicators: S-Score,
S-Mean, S-Delta, S-Volatility, S-Buzz, and S-Dispersion, which may allow
customers to track relative sentiment, in addition to volume, change,
and dispersion of social media commentary.
"Everyone
is monitoring what is being said on Twitter now. SMA offers firms the
right tool for the job with data that consists of clear, quantified,
actionable intelligence on social media sentiment," said Tom Watson, Vice President, Global Market Data, NYSE Technologies. "We
believe this will change the way the financial sector thinks about
social media. For the first time, trading firms, brokers, asset
managers, and non-financials in every sector will have a measurable way
to track the sentiment of the social media stream of consciousness.""Social
Media is already a large but still rapidly growing means of
communication and efficient global interaction. Many of these
conversations discuss companies, stocks and market activity, but until
now there hasn't been a way to collect and quantify this data," said Joe Gits, CEO of SMA. "Our
process is unique in this emerging field both in its approach to
filtering social media data and in the analytical methodology used to
develop our proprietary metrics. We are excited to be working with NYSE
Technologies to offer this service to a wide range of clients delivered
quickly and cost-effectively over the SFTI network."
Can social map to share prices?
This isn't a new idea. Last year social research company Sociagility released a study showing that social signals were a good indicator of stock performance.
“Higher social media performance scores were associated with positive changes in share price,” Sociagility said in a statement.
“Of course, many more data points would be required to determine whether or not this represents a real or consistent lead indicator,” the report cautions. “However, the presence of any such statistically significant correlations between social media performance and share price movements should certainly embolden corporate communications directors to go to their CEOs and CFOs and say: ‘Look, this matters, and I need more resources to do it properly.’”
That study was of course measuring how social management correlates to strong share performance. So it wasn't looking at social signals per se. That said however, social mentions have been used to track flu and other epidemics, so it will be interesting to see if social can also provide an indicator into the hive nature of stock trading.
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