Twitter As Investment Tool

Social Media, Financial Algorithms and the Hack Crash by Tero Karppi and Kate Crawford.

Abstract:

@AP: Breaking: Two Explosions in the White House and Barack Obama is injured’. So read a tweet sent from a hacked Associated Press Twitter account @AP, which affected financial markets, wiping out $136.5 billion of the Standard & Poor’s 500 Index’s value. While the speed of the Associated Press hack crash event and the proprietary nature of the algorithms involved make it difficult to make causal claims about the relationship between social media and trading algorithms, we argue that it helps us to critically examine the volatile connections between social media, financial markets, and third parties offering human and algorithmic analysis. By analyzing the commentaries of this event, we highlight two particular currents: one formed by computational processes that mine and analyze Twitter data, and the other being financial algorithms that make automated trades and steer the stock market. We build on sociology of finance together with media theory and focus on the work of Christian Marazzi, Gabriel Tarde and Tony Sampson to analyze the relationship between social media and financial markets. We argue that Twitter and social media are becoming more powerful forces, not just because they connect people or generate new modes of participation, but because they are connecting human communicative spaces to automated computational spaces in ways that are affectively contagious and highly volatile.

Social sciences lag behind the computer sciences in making their publications publicly accessible as well as publishing behind firewalls so I can report on is the abstract.

On the other hand, I’m not sure how much practical advice you could gain from the article as opposed to the volumes of commentary following the incident itself.

The research reminds me of Malcolm Gladwell, author of The Tipping Point and similar works.

While I have greatly enjoyed several of Gladwell’s books, including the Tipping Point, it is one thing to look back and say: “Look, there was a tipping point.” It is quite another to be in the present and successfully say: “Look, there is a tipping point and we can make it tip this way or that.”

In retrospect, we all credit ourselves with near omniscience when our plans succeed and we invent fanciful explanations about what we knew or realized at the time. Others, equally skilled, dedicated and competent, who started at the same time, did not succeed. Of course, the conservative media (and ourselves if we are honest), invent narratives to explain those outcomes as well.

Of course, deliberate manipulation of the market with false information, via Twitter or not, is illegal. The best you can do is look for a pattern of news and/or tweets that result in downward changes in a particular stock, which then recovers and then apply that pattern more broadly. You won’t make $millions off of any one transaction but that is the sort of thing that draws regulatory attention.

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