Has Social Media given stock markets a soft side? An analysis of the influence of Twitter Sentiment on stock markets prices and volatility

Abstract

This thesis aims to better understand social media’s influence on the stock market. Social media has transformed almost every aspect of the world we know today, and rests in the hands of the very consumers that drive markets. Social media is in a unique position to influence consumer markets and has given rise to the idea that the stock market can be ’emotional’ and therefore, moved by consumer opinion. The world saw this firsthand when Reddit, a social media company, raised a stock by nearly two hundred percent in 24 hours.Ultimately, this thesis will consist of a literature review of existing studies, a discussion of gaps in the literature, and an attempt to fill some of these gaps. To accomplish this, I will implement and test the efficiency of natural language processing (NLP) in collecting qualitative data and predicting future stock prices. I will use a bank of ’positive’ and ’negative’ words to comb through financial articles, tweets, and Reddit posts and compare them to stock market indicators. Given the limited research into the efficacy of NLP on stock market prediction, this code will be an attempt to 1) make advancements in this area of research, and 2) better quantify how impactful the words of the consumer are on the market.