The Influence of Social Media on the Stock Market
Erbelding, Sascha (2022)
Erbelding, Sascha
2022
All rights reserved. This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited.
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2023052313241
https://urn.fi/URN:NBN:fi:amk-2023052313241
Tiivistelmä
In recent years, social media platforms have become part of the daily lives of almost all young adults. At the same time, the number of young retail investors who want to become active on the stock market is increasing. The reasons for seeking another source of income lie in rising inflation rates and salary cuts, not least intensified by the corona pandemic. The fact that social media platforms are often used as a source of stock market information leads to the question of how social media and the information published on them find their way into stock markets and how they influence their prices.
Results show that retail investors form the bridge through which information from social media enters the stock market environment. Due to the subjective nature of social media content and psychological characteristics of retail investors, prices on the stock market can deviate from their fundamentals and generate abnormal returns and thus belong to the field of behavioral finance. The psychological characteristics of retail investors can be traced back to phenomena such as limited attention and investor sentiment.
In the case of the GameStop short squeeze, it was the initiation and collusion via social media that led to the magnitude of the event and demonstrated social media’s impact on securities to such an extreme extent for the first time. The GameStop event can be seen as a new sub-form of financial bubbles because, unlike previous bubbles, it was inflated on purpose and with exactly this intention.
Results show that retail investors form the bridge through which information from social media enters the stock market environment. Due to the subjective nature of social media content and psychological characteristics of retail investors, prices on the stock market can deviate from their fundamentals and generate abnormal returns and thus belong to the field of behavioral finance. The psychological characteristics of retail investors can be traced back to phenomena such as limited attention and investor sentiment.
In the case of the GameStop short squeeze, it was the initiation and collusion via social media that led to the magnitude of the event and demonstrated social media’s impact on securities to such an extreme extent for the first time. The GameStop event can be seen as a new sub-form of financial bubbles because, unlike previous bubbles, it was inflated on purpose and with exactly this intention.