Please enable JavaScript.  This webapp requires JavaScript to work at its best.

Market News

The impact of social media on stock prices

18/06/2023

There’s no denying the usefulness of social media. However, there’s also no denying the impact that it can have on public opinion – of many different things.

During the COVID pandemic, for example, social media allowed anti-vaxxers and conspiracy theorists to spread rumours and lies, taking advantage of users’ fear and uncertainty.

But is the same true for investing?

The answer, quite simply, is “yes”.

 

A tale of Tesla and Gamestop

In May 2020, Tesla founder, Elon Musk, tweeted, “Tesla stock price is too high imo”. As a result of this tweet, Tesla’s stock price fell by 10% that day.

Despite regulators questioning the legality of his activity, Musk has continued to tweet in ways that impact stock prices, most notably in the cryptocurrency space. A paper published in January 2023, based on a sample of 47 of his cryptocurrency-related tweets, identified “significant positive abnormal returns and trading volume following such events”.

In January 2021, it was Reddit that was responsible for major fluctuations in GameStop share prices. Major investors had been shorting GameStop, deeming it to be overvalued. Discovering this, a group of Redditors invoked the power of FOMO (fear of missing out) by talking about GameStop as an investment with guaranteed returns on a particular subReddit. GameStop’s stock price began to rise, peaking at $483 on January 28th before falling again just a few days later. Short-sellers that bet against GameStop, said Bloomberg, lost around $8bn in total that month.

 

What this means for investors

The GameStop and Tesla/cryptocurrency examples above show the vast power of social media when it comes to influencing people to make investing decisions. There’s no denying that social media can be a useful source of information when choosing which stocks to buy or sell…but can you be sure that it’s a source that’s 100% accurate?

With so many social media users rallying together to cause significant shifts in the stock market, as in the GameStop example, it shows how important it is for individual investors to research stocks from all angles and separate rumour from fact before making any major decisions.

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

Share this article

More reading
Forgotten your password?