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Assignment : Social Media

   

Added on  2020-05-16

8 Pages2045 Words81 Views
Running head: EVALUATING CONTRIBUTION OF SOCIAL MEDIAEvaluating contribution of social media to stock price and investors sentimentsName of the UniversityName of the StudentAuthors Note

1EVALUATING CONTRIBUTION OF SOCIAL MEDIAIntroduction:Social media are increasingly influencing and reflecting the behaviour of investorsand traders. The recent revolution in technology has created an unprecedented situationrelating to data deluge and has brought a dramatic change in way people look at socialscience. There is an analogous increasing online activity due to constant use of internet assource of information. A massive datasets is being generated due to interaction with thetechnological systems. Social media is the collective of online communications channels likeTwitter, LinkedIn, YouTube and Facebook that designed for community-based input, sharingof information and ideas, interaction and collaboration (Vučinić 2017). Twitter is becomingan increasingly popular micro blogging platform that is used by investors for financialforecasting. A statistically significant relationship is found between stock returns and twittersentiments and the results are consistent with existing literature on the content ofearnings.Either positive statements or normative statements which carry different valuejudgements can be transmitted to users of social media (Sulphey 2014). Market news becometransparent and spreads out quickly through social media as people who frequently followand update news may share with their friends, therefore, stock prices react quickly to newsand information followed by investor’s sentiment.Discussion:World has become more connected and intertwined with the advancement intechnologies and the sentiments in the platforms of social media affect the large and smallcapitalization of stocks. The reason why social media would have an influence on stockmarket is that company might be wanting to disseminate information that are value relevanton internet while framing a long position on stock themselves. The prohibition of shortselling inclines online investors towards disseminating more information about the stocks

2EVALUATING CONTRIBUTION OF SOCIAL MEDIAthey intend to purchase rather than spreading wrong information for earning profit (Raissiand Missaoui 2015).The best methodologies for assessing the financial markets using social media isexplained by tow school of thoughts. First school of thought is related to evaluation ofvolume of social media messages, Wikipedia views and search engine queries. Secondmethodology is about movement in financial market with the help of quantitative evaluationof contents of social media messages. Due to the nature of normative statements provided byrandom investors, social media become influential drivers of investor’s sentiment and thusstock prices (Elliott et al. 2017). It has been found that there is positive correlation betweenthe changes in investor’s sentiment and stock prices.In this paper, we will assess the contribution of social media to investor’s sentimentand valuation of stock prices with reference to EMH, taking account into possiblepsychological factors which affect investor’s sentiment (which is defined as belief aboutfuture cash flows and investment risks without justification by the facts) in the content ofBehavioural Finance. The prices of stock or securities are close to their fundamental values inaccordance with the efficient market hypothesis. Market is regarded as efficient because ofrationality of investors and limitless arbitrage conduction (Li et al. 2017). Rational investorshelp in quickly eliminating any dislocations in price of assets. However, decision making ingeneral is largely influenced by emotions of human along with behaviour and decisionmaking in financial markets. It is expected that positive and better investor’s mood will makethem prone to buying rather than selling of stocks. Changes in price of stocks can beexplained by identifying the influences of public mood and that cannot be explained byfundamentals (Guzavicius et al. 2014). It has been ascertained that sentiments and mood ofinvestors regarding stocks can be abstracted from social media. It helps in explaining moodof publics and aggregate characters. If the decisions in the financial market are influenced by

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