Social media makes stocks more volatile than traditional news

18 April 2016

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Researchers at the Institute for New Economic Thinking at the Oxford Martin School have found a "striking" difference between the impacts that traditional news media and social media can have on financial markets.

Ansgar Walther and colleagues analysed the effect of intense coverage on social media platforms such as Twitter, and found it led to "high volatility of returns and high trading volume" for stocks over the following month. But intense coverage by traditional news media, be it online or in print, was followed by low volatility and low trading volume. After comparing the evidence to predictions from their own model, they found the impact of social media was not consistent with the idea of 'rational markets'.

Part of the problem, they say, is "stale news", where investors treat repeated information on social networks as though it were new. They also found that investors' interpretation of content on social media was subject to "significant and volatile misconceptions".