Social Media sentiment integration to financial analysis Exploiting its predictive dimension for remunerative trading activities and avoiding stock market irrationalities

Abstract

With the recent occurrence of some incredible and senseless financial phenomena, first of all the famous short-squeeze of the GameStop stock, accompanied by other so-called “meme stocks”, there is a clear need to review the way we have studied financial markets so far. The role played by social media in terms of disseminating opinions, sharing information and attracting attention even specifically concerning financial activities can no longer be ignored. The Covid pandemic has amplified both people’s interest in online trading and the already massive use of social media as a forum to discuss market trends. In this essay our focus consists in understanding the degree of influence social media talks have on financial behaviour of people and consequently on financial markets performances themselves, going to see if through sentiment analysis of social-media-extracted content future trends of stock markets can be predicted. The same recent emergence of “meme stocks” is analysed from a social network standpoint, surveying its level of correlation with online forums and trying to guess if it could be guessed in advance, allowing both investors and regulators to take precautions and prevent huge losses. In this sense, we suggest some kind of modernization of the financial analyst’s activity, or perhaps the integration of a new professional figure that specifically deals with studying the spread of economic messages and sentiments on social media, and the potential future actions of coordinated collective trading. In a world where trading activities have become so fast and where financial talks are ubiquitous in our social platforms, economic and financial fundamentals and traditional theory are not enough to keep up with the times and trying to understand and predict market performances.