Technology has enabled retail investors to participate more equitably through low-cost, innovative instruments (such as hedge funds and ETFs). It also provides them with access to the same market data as professionals.
As technology continues to blur the lines between institutional and retail traders, it levels the playing field in capital markets.
An emerging area of technology that’s helping to further democratize markets is the analysis of investor sentiment. This is the focus of BUZZ Indexes: bringing the investor sentiment factor to the masses by using advancements in Artificial Intelligence (AI) technology to harvest insights from social media’s Big Data, to be used as a predictive factor in stock prices.
The price of a stock should incorporate all publicly available information—from traditional sources (including news articles, press releases, financial statements and regulatory filings) as well as emerging sources (such as blog posts, social commentary and tweets). Naturally, there is a great deal of noise generated by social media. But research shows that when you use AI and machine-learning technologies to filter this raw and unstructured data, social sentiment matters.
One research study that examines the social media equity factor shows a strong positive relationship between the daily time-series of tweet sentiments and their corresponding security returns.
The study measured tweet sentiment (both bullish and bearish) around 15 specific companies and found that the more popular a given stock is, as measured by total tweet volume, the more powerful its social media factor.
Not only that, but the social media factor survives the presence of traditional factors that have been widely employed for decades, such as the Fama-French Five Factors.
Innovation from financial technology companies has provided us new forums to facilitate greater access and better communication. Advances in artificial intelligence and machine learning afford new tools to analyze data and understand huge amounts of information in ways never before imaginable. The way in which information is assembled to analyze companies and forecast stock prices has changed for good.
Learn more about social media’s impact on investing and financial markets by downloading our whitepaper, “Investing just got social”.
The Sprott Buzz Social Media Insights ETF (NYSE:BUZ) was unchanged in afternoon trading Tuesday at $24.98 per share.