Abstract
Recently much attention has been paid on initial public offerings of social media companies, such as Facebook or Linkedln and how their owners become millionaires. However, this paper does clearly not focus on the valuation of IPOs of social media companies! Stock markets are sentiment driven—the herd-like behaviour of investors lead easily to overreactions and investment decisions based on emotions. Within the scope of this article the power of social media as a tool for sentiment analysis for stock exchange investments is investigated. With the emergence of behavioural economics and finance and socionomic theories of finance, also today’s social media will provide implications on stock exchange market sentiments and investment decisions. This paper provides a framework how social media can be utilized as a tool for the evaluation of stock exchange market sentiments and which impact they have on particular investment decisions. News and information are the keys for successful investments, and social media provide an additional source of decision making, investment planning, or allow the spreading of financial news even quicker than news tickers. Within the scope of this paper, a framework for the application of social media as a tool in stock exchange trading is presented. The paper examines the potentials of social media for the analysis of themed focused social media platforms, collective mood analysis, attitude of investors and traders, social media content analysis, and the actual stock exchange value.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Aronson, D. R., & Wolberg, J. R. (2009). Purified sentiment indicators for the stock market. Journal of Technical Analysis, 66, 7–27.
Asur, S., & Huberman, B. A. (2010). Predicting the future with social media. CoRR, abs/1003.5699.
Baker, M., & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129–151.
Black, F. (1986). Noise. Journal of Finance, 41(3), 529–543.
Boerse-Frankfurt (n.d.) DAX Sentiment. http://www.boerse-frankfurt.de/DE/index.aspx?pageID=44&NewsID=6417.
Bollen, J., Mao, H., & Zeng, X. (2011). Twitter mood predicts the stock market. Journal of Computational Science, 2(1), 1–8.
Bondt, W. F. M. D., & Thaler, R. (1985). Does the stock market overreact? Finance, 40(3), 793–805.
Bordino, I., Battiston, S., Caldarelli, G., Cristelli, M., Ukkonen, A., & Weber, I. (2011). Web search queries can predict stock market volumes. Arxiv preprint arXiv11104784v1, 22.
Campbell, J. Y., & Shiller, R. J. (1998). Valuation ratios and the long-run stock market outlook. The Journal of Portfolio Management, 24(2), 11–26.
Centre for European Economic Research (n.d.a). http://www.zew.de.
Centre for European Economic Research (n.d.b). ZEW Indicator of European Sentiment. http://www.zew.de/en/publikationen/Konjunkturerwartungen/Konjunkturerwartungen.php3.
CESifo GmbH (n.d.). Ifo Surveys. http://www.cesifo-group.de/portal/page/portal/ifoHome/a-winfo/d1index/10indexgsk.
Chen, H., Chong, T. T.-L., Duan, X., et al. (2010). A principal-component approach to measuring investor sentiment. Quantitative Finance, 10(4), 339–347.
Cognitrend (n.d.). http://www.cognitrend.de/de/index.php.
De Long, J. B., Shleifer, A., Lawrence, H. S., & Waldmann, R. (1990). Noise trader risk in financial markets. Journal of Political Economy, 98(4), 703–38.
Deutsche Boerse Group (n.d.). http://www.dax-indices.com/.
Edmans, A., Garcia, D., & Norli, O. (2006). Sports sentiment and stock returns. Sixteenth Annual Utah Winter Finance Conference; EFA 2005 Moscow Meetings. May.
Edmans, A., García, D., Norli, Ø., et al. (2007). Sports sentiment and stock returns. Journal of Finance, 62(4), 1967–1998.
Elder, A. (1993). Trading for a living: psychology, trading tactics, money management. Wiley Finance: Wiley.
Eler, A. (2011 December). How Social Media Is Changing the Stock Market. http://bx.businessweek.com/social-media-marketing/view?url=http%3A%2F%2Fwww.readwriteweb.com%2Farchives%2Fhow_social_media_is_changing_the_stock_market.php%3Futm_source%3Dfeedburner%26utm_medium%3Dfeed%26utm_campaign%3DFeed%253A%2Breadwriteweb%2B%2528ReadWriteWeb%2529.
Eurex (n.d.). http://www.eurexchange.com/.
European Central Bank (ECB) (n.d.). http://www.ecb.int/.
Eurostat (n.d.). Selected principal European Economic Indicators. http://epp.eurostat.ec.europa.eu/portal/page/portal/euroindicators/peeis.
Fama, E. F. (1970). Efficient capital markets: a review of theory and empirical work. Journal of Finance, 25(2), 383–417.
Fama, E. F., & French, K. R. (1988). Dividend yields and expected stock returns. Journal of Financial Economics, 22(1), 3–25.
finanzen.net (n.d.). http://www.finanzen.net.
Fisher, K. L., & Statman, M. (2002). Consumer confidence and stock returns. Journal of Empirical Finance, 18, 225–236.
French, K. R. (1980). Stock returns and the weekend effect. Journal of Financial Economics, 8, 55–69.
Garg, R., Smith, M. D., & Telang, R. (2011). Measuring information diffusion in an online community. Journal of Management Information Systems, 28(2), 11–38.
Jensen, M. C. (1978). Some anomalous evidence regarding market efficiency. Journal of Financial Economics, 6(2–3), 95–101.
Keynes, J. M. (2008). The general theory of employment, interest and money. New Delhi: Atlantic Publishers and Distributors Pvt. Ltd.
Lawrence, E. R., McCabe, G., & Prakash, A. (2007). Answering financial anomalies: sentiment-based stock pricing. The Journal of Behavioural Finance, 8(3), 161–171.
Lietsala, K., & Sirkkunen, E. (2008). Social media. Introduction to the tools and processes of participatory economy. Hypermedia Laboratory Net Series, no. 17. Tampere, Finland: Tampere University Press.
Lombardi, P., Aprile, G., Gsell, M., Winter, A., Reinhardt, M., & Queck, S. (2011). Definition of market surveillance, risk management, and retail brokerage usecases. Report D1.1. FIRST—Large scale information extraction and integration infrastructure for supporting financial decision making (IST STREP).
Malkiel, B. G. (2012). A random walk down wall street: The time-tested strategy for successful investing. Norton.
Mandelbrot, B. (1966). Forecasts of future prices, unbiased markets, and “Martingale” models. The Journal of Business, 39(1), 242–255.
Merriam-Webster (n.d.). Merriam-Webster Online Dictionary. http://www.merriam-webster.com/dictionary/.
Neal, R., & Wheatley, S. M. (1998). Do measures of investor sentiment predict returns? Journal of Financial and Quantitative Analysis, 33(4), 523–547.
Pang, B., & Lee, L. (2008). Opinion mining and sentiment analysis. Foundations and Trends in Information Retrieval, 2(2), 1–135.
Read, B. (2011 June). The (Social) Customer Isn’t Always Right. http://blog.tmcnet.com/call-center-crm/call_center_crm/the-social-customer-isnt-always-right.asp.
Remus, R., Quasthoff, U., & Heyer, G. (2010). SentiWS—A publicly available German-language resource for sentiment analysis (pp 1168–1171). European Language Resources Association (ELRA).
Rouwenhorst, K. G. (1998). International momentum strategies. Journal of Finance, 53(1), 267–284.
Sakalyte, J. (2009). European stock exchange networks: connections, structure and complexity. Applied Economics: Systematic Research, 3(2), 31–39.
Samuelson, P. (1965). Proof that properly anticipated prices fluctuate randomly. Industrial Management Review, 6(2), 41–48.
Scoach (n.d.). http://www.scoach.de.
Sheu, H.-J., Lu, Y.-C., & Wei, Y.-C. (2009). Causalities between the sentiment indicators and stock market returns under different market scenarios. International Journal of Business and Finance Research, 4(1), 159–172.
Sheu, H.-J., & Wei, Y.-C. (2011). Options trading based on the forecasting of volatility direction with the incorporation of investor sentiment. Emerging Markets Finance and Trade, 47(2), 31–47.
Shleifer, A., & Vishny, R. W. (1997). The limits of arbitrage. Journal of Finance, 52(1), 35–55.
Stockcharts (n.d.). http://stockcharts.com.
StockTwits (n.d.). http://wwwstocktwits.com/.
Thaler, R. H. (1999). The end of behavioral finance. Financial Analysts Journal, 56(6), 12–17.
Thomson Reuters (n.d.). Social pulse. http://www.reuters.com/social.
Vukanovic, Z. (2011). New media business models in social and Web media. Journal of Media Business Stud, 8(3), 51–67.
Weinhardt, C., Gomber, P., & Holtmann, C. (2000). Online brokerage: transforming markets from professional to retail trading. ECIS 2000 Proceedings, 826–832 ST – Online–Brokerage – Transforming Mark.
Zouaoui, M., Nouyrigat, G., & Beer, F. (2010). How does investor sentiment affect stock market crises? Evidence from panel data. Recherche, 46, 723–747.
Acknowledgments
With many thanks to Martin A. for his discussions and insights!
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2013 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Lugmayr, A. (2013). Predicting the Future of Investor Sentiment with Social Media in Stock Exchange Investments: A Basic Framework for the DAX Performance Index. In: Friedrichsen, M., Mühl-Benninghaus, W. (eds) Handbook of Social Media Management. Media Business and Innovation. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-28897-5_33
Download citation
DOI: https://doi.org/10.1007/978-3-642-28897-5_33
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-28896-8
Online ISBN: 978-3-642-28897-5
eBook Packages: Business and EconomicsBusiness and Management (R0)