Social Media’s Growing Influence on Financial Markets
In January 2021, a surprise buying surge caused the stock value of strip-mall videogame store GameStop to skyrocket, jumping from around $40 to $400 in days. This sudden craze was hatched as a revenge plot on Reddit to punish a hedge fund trying to short the stock, and the play was taken up by the masses all across social media.
The GameStop frenzy has come and gone but the rookie Reddit-inspired investors who drove the spike in the company’s share price may be here to stay. Brokerage firms, traditional investors and regulators alike need to watch where this fast-moving, app-wielding crowd moves next.
Key takeaway from the paper
Social media to change the ways we invest and report
Beyond the memes and the mania, the GameStop scenario illustrates deep structural changes taking place in financial markets. Today, investors must learn to command a torrent of data from social media and other sources. And, for many it’s still a balancing act.
This shift in the way data is shared has both benefits and risks for publicly listed firms, intermediaries, and investors in financial markets, as well as for those who produce information and manage its flow, including professional accountants, regulators, the media and social media platforms.
It’s not just Reddit, either. Social media has enabled a broader investing audience than ever before. “By far the biggest revolution in the dissemination of information on the internet has been the advent of social media platforms such as Twitter,” says Professor Partha Mohanram, CPA, CGA, the author of this University of Toronto paper. Twitter’s short message format and easy search for stock symbols using the dollar sign ($) for “cashtags” make it especially well-suited for posting views about stocks to a wide audience.