Can Social Media Popularity Really Predict Stock Prices?

Over the course of 10 months from 2010 to 2011, a study conducted by a doctoral student at Pace University, in association with Famecount, a popularity and conversation tracking tool, tracked Starbucks, Coca Cola, and Nike across their social media activity. The objective was to see if there was any correlation between social media popularity and each brand’s stock value.

The study looked at a small number of brands and the indices used to track stock market performance. And while public interest might not be sufficient to separate the influence of social media popularity from other factors, traders are indeed taking notice by using sentiment analysis seriously as a way to measure a brand’s standing with consumers and media. So much so that data extracted from text and sentiment analysis is now being used as input for algorithmic trading, the automated trading software that accounts for up to 50 percent of trades in the U.S.

In short, the study concludes that social media popularity across “the big three” – Facebook, Twitter and YouTube – can indeed be a lead indicator of stock price performance. Check out Venture Beat for an in-depth analysis.