NEW RESEARCH HIGHLIGHTS THE IMPACT OF SOCIAL MEDIA ON SHARE PRICES
Written on the 4 January 2017 by Lin Evlin
COMPANIES that reach investors through social media can lead them closer to the decision to invest, says new research.
After studying 3,516 ASX releases published throughout 2008 -2013, Maria Prokofieva, senior lecturer at Victoria University, discovered that corporate information sent out on social media can unintentionally influence investor decision-making in an unequal way.
She argues that the common belief that share prices reflect all available information is mistaken. Rather, individuals are limited by time and resources and therefore do not always track all securities and review the release of new information.
Sydney based investor social media expert, David Coe, says Prokofieva's research further strengthens findings from previous studies by Stanford, Indiana and Manchester Universities, which concluded that social media affects share prices.
"This is why Bloomberg now provides social media analytics to its clients. It is why the New York Stock Exchange and the Nasdaq support their companies especially smaller companies - with investor social media," says Coe.
Prokofieva's research found that social media helps ASX companies to reach investors and get heard. It provides a platform which enables companies to establish direct lines of communication with existing and potential investors instead of relying solely on business press and analysts to promote new financial information.
Additionally, retweeting key information and hashtagging important phrases on social media platforms such as Twitter can further attract the attention of investors.
Coe, who is the managing editor of Investor Torque, says that social media has recently helped one of his clients widely disseminate financial news.
"This is exactly the combination of factors that was instrumental last week in one of our clients, a $32 million gold minnow with 1,585 Twitter followers, being retweeted to 260,787 retail investors, brokers, journalists, fund managers, wealth advisers and others in the financial markets and beyond," he says.
"That reach put our client, Stonewall Resources (ASX: SWJ) in the top 4% of the world's most influential Twitter users, just 2 percentage points behind Anglo American as measured by Retweet Rank."
Prokofieva also notes that social media can be a powerful weapon used against companies by its critics and accordingly could harm share prices as well.
For example, she cited how David Jones and Whitehaven Coal suffered significant share price falls due to market rumours and attacks on social media in 2012 - 13.
It was these such incidents which led the ASX to introduce Guidance Note 8 which requires all ASX companies to monitor social media for rumours and potential announcement leaks.
With additional corporate resources required to comply with this guidance note, Prokofieva believes social media is a very important element of business management which requires attention from investors, companies, regulators and IT experts alike.