Social Media Presence Can Drive Up Stock Prices

It seems that barely a week passes and another reason appears for managers to promote their company’s business via social media. Popularity on social media sites such as Facebook, Twitter and more can affect a business’s stock prices.

A recent study conducted by a Pace University post-graduate student in conjunction with Famecount indicated that the more popular a business and its products and services are on social media sites, the better its daily stock prices fared when compared with companies who did not use social media as a marketing tool. Tracking the outcomes of Starbucks, Coca Cola and Nike over a 10-month period in 2010-2011, the study measured each company’s number of Facebook fans, Twitter followers and YouTube views to measure popularity. That data was subsequently pitted against keyword searches for each company along with daily stock prices and then compared to a general consumer stock index indicating how well the stock market is doing as a whole.The study found a relationship between daily stock prices and the brand’s popularity on the Internet that day. Even when up to a 30-day lag time was included in the analysis, the resulting information indicated that social media popularity may, very well indeed, affect stock performance. During the study period, Starbucks’ stock price increased by 24 percent while Coca Cola’s decreased by 6 percent.

Only an extremely small number of companies and indices were used to track stock performance. Traders, however, have been known to take sentiment and text analysis and similar techniques seriously. This data is now being used as input for algorithmic trading and automated trading software. Furthermore, this new data does not correlate with existing data. Rather, traders are treating this data as new information.

Lest you think that all of the social media activity needs to be positive, think again. It’s the fact that brands get hits, tweets and the like on any social media site that matters. It simply follows the old adage of any publicity is good publicity.