Is social media popularity linked to stock price performance?

Social media analytics firm Famecount.com got together with Arthur O'Connor, a doctoral student at Pace University, to discover whether sentiment towards a brand on social media sites was an indicator of stock price performance.

by Helen Leggatt

200px-Lastminute.com_stock_price.png After analyzing data from popular social media brands Nike, Starbucks and Coca Cola, across a 10 month period to 2 February, 2011, it was claimed a statistically significant correlation between social media popularity and stock prices was discovered, suggesting social media popularity may be a lead indicator of stock performance.

"By using social network popularity data on three major consumer brands, we were able to reliably predict their respective daily stock prices over a 10 month period - during which the stocks of the companies experienced radically different returns, with Starbucks climbing 29%, Nike appreciating by 14%, and yet Coke declining by nearly 6% - even when the social media data was lagged by as much as 30 days," said O'Connor.

While this study looked at only a few brands, sentiment analysis is something that traders are taking increasingly seriously. Reuter's trading dashboard, for example, uses text and sentiment analysis from Lexanalytics to track news on 20,000 stocks and commodities.