NEW YORK & LONDON--(EON: Enhanced Online News)--Twitter’s recent IPO announcement sparked a global media frenzy, but as research analysts at TABB Group warn, Twitter’s own data could be used against it to price the stock, impacted if not attenuated by public and market sentiment as well as other broadly used social media sources.
“For better or worse, financial markets need to adjust accordingly.”
According to TABB, this begs the question: As social media democratize broadcast mechanisms that once belonged solely to traditional media, does their use open the door to massive changes in the way that Internet-driven communication spreads through tweets, posts and “likes, reaching viral proportions – and how they can influence the world’s financial markets in seconds?
No longer seen merely as an instrument for play and leisure, emerging techniques and technologies are now giving social media a more serious use case, as a trading tool utilized by every level of trader, from Wall Street professionals with algorithms, to day traders and retail investors on Main Street.
Investors have been using social media sites like Yahoo! Message Boards for years as part of their decision-making process, but with the massive volume of the Twitter fire hose alone surpassing 430 million tweets a day, peaking at 600,000-plus per minute, start-up firms as well as traditional market data providers like Bloomberg and Thomson Reuters are offering better social media analytics with the ability to automate incorporation of social media data into trading amidst this continuing explosion in quantity and types of data.
“But the question remains: Can it even be analyzed effectively and accurately?” say TABB’s Adam Sussman, director of research, and research analyst Valerie Bogard, co-authors of “Social Alpha: Channeling the Chatter.”
In the analysis process, the first challenge is determining what content should be included. Techniques include the links inside tweets, which could lead to any number of secondary pieces of content, explains Bogard, pointing out that once the data has been scrubbed and filtered, the most common type of analysis is sentiment. “The most basic form is polarity, a negative or positive sentiment. Richer sentiment analysis can include a wide range of emotions, such as frustration, fear, or joy. An even more elaborate analysis can go beyond emotions and describe broader macroeconomic themes and concepts. And then it gets even more complex.”
The sheer number of social analytic start-up firms focusing on this space shows the level of interest and excitement for this emerging technology, but as Sussman says, “The trend itself is still in its infancy and there are a variety of obstacles that both vendors and users face. That includes the representative group of 10 start-ups and market data providers we examined that launched or are working on social analytics products whose primary targets are horizontal industries, such as healthcare, retail, government, politics, publishing and technology, or vertical sectors, specifically capital markets as well as investor relations in capital markets.”
Still a burgeoning field, improvements need to be addressed, says Bogard. Despite significant progress in analyzing English social media, analysis of other languages, including Internet slang associated with social sites, is under-developed, severely limiting applicability. But according to Sussman, social media is already changing the way news, data and opinions are generated, disseminated and consumed. “For better or worse, financial markets need to adjust accordingly.”
The 9-page report with 5 exhibits can be accessed by TABB Group Research Alliance clients and all pre-qualified media at https://www.tabbgroup.com/Login.aspx. For a copy of the Executive Summary or more information, visit www.tabbgroup.com. To purchase the report, write to firstname.lastname@example.org.
About TABB Group
With offices in New York and London, TABB is the only research and consulting firm focused exclusively on capital markets, based on the interview-based, “first-person knowledge’ research methodology developed by Larry Tabb. For more information, visit www.tabbgroup.com. In 2010, TABB launched TabbFORUM, the online capital markets community for peer-to-peer opinion and analysis covering current industry issues, tracked daily by 18,000-plus professionals.