Posted on Monday, August 13, 2018
Despite concerns to the contrary, it turns out that Twitter can be a good investor information source. New research shows that the collective intelligence created by the social media platform does a good job of predicting company earnings and their subsequent impact on stock prices. The study was motivated by exponential growth in “peer-to-peer” sharing and information tools, exemplified by social media such as Twitter, said Partha Mohanram, John H Watson Chair in value investing, and professor of accounting at the University of Toronto’s Rotman School of Management. He conducted the study with two others researchers from New York University and Arizona State University.
The study applied textual analysis techniques to 870,000 tweets about 3,600 companies between January 2009 and the end of September 2012. On the whole, tweets in the days leading up to a firm’s quarterly earnings reports successfully predicted whether the firm would meet its targets or not. Twitter activity also did well in forecasting how the stock price would subsequently respond. The diversity and independence of opinion provided through social media should trump concerns about limited cases of manipulation, the researchers say.
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