Twitter’s effect on share price movements of the Johannesburg Stock Exchange

Abstract

This research project examines the link between social media and its effect on stock exchanges and movement of stocks. The study uses Twitter as its primary social media platform and focuses on its effect on the Johannesburg Stock Exchange. The study examines various forms of social media and micro-blogging sites in its attempt to provide a thorough understanding of the role of social media within the market. In line with its exploration of social media, the study analyses User-Generated Content, Sentiment Analysis and the impact of Word-of-Mouth. A brief explanation of Algorithmic Trading, the Efficient Market Hypothesis, and the Adaptive Market Hypothesis is also provided. The information used to show the relationship between Twitter and the JSE was extracted using a quantitative survey answered by registered traders on the JSE. The survey aimed to ascertain the level of information pertaining to stock movement posted to the platform by these traders, and how these traders used that same information to make trading decisions. The results of the study show that Twitter and other micro-blogging sites have a level of determination in stock exchanges. This study shows that traders make some use of online information to inform their trading decisions on the Stock Market. The validity of this online information stems from the fact that traders place trust in other people and other users’ experience, as proven by Word of Mouth. The findings of this study were contrary to the researchers’ expectation that Twitter was widely used as an informant for trade decisions. What is deduced from the available findings is that while Twitter and other social media platforms do to some extent provide information for traders on the JSE in making trade decisions, it is not a wide-spread basis for movement of shares.