Twitter and Financial markets

Abstract

Several researchers (Mitra and Mitra 2011, Tetlock 2007) have already shown that media influences investor sentiment, hence asset prices, asset price volatility and liquidity. Since 1960’s researchers have been investigating the relationship between returns and press releases, M&A announcements, annual reports etc. Studies in behavioral finance (Lucey and Dowling 2005, Baker and Nofsinger 2002) have already found that emotions affect investor decisions. Social media is an important source of information flow which has tremendously grown in importance over the past few years. Although the relationship between news and financial markets has already been researched a lot, the research about the relationship between social media and financial markets is largely unexplored. In this paper we make an attempt to capture this emotion or sentiment about the company through an analysis of public tweets obtained from Twitter. We investigate the impact that the sentiments extracted from twitter postings about a company have on its performance in the markets, namely stock returns, volatility and liquidity