The influence of social media on stock market trends: exploring implications and legal challenges

Abstract

Throughout history, the belief in finance transitioned from a traditional to a behavioural perspective, research regarding the irrational behaviours of the human mind were explored. With the advancement of the internet and social media in particular, people often seek financial information in social media platforms, instead of the traditional news, therefore, fuelling the opportunity for companies to release news about their company online, and customers having access to that information instantly, already indicating an influence factor of the stock market. Linking the previously mentioned with the rise of very successful people in regard to social media audience, they have obtained an influencer title, which gives them the ability to “talk their book” and influence the stock market just by providing their opinions of a certain company or other potential investment, as proven in section 3.5.1 Real-life examples by conducting an event analysis on the abnormal return of an event, a tweet made by Elon Musk in particular. In addition to the event study, a Pearson’s correlation coefficient and P-value was calculated to approve the hypothesis raised There is a blurry line between expressing one’s opinion and market manipulation, which is still quite unclear, as situations like the ones mentioned in the real-life examples section were provided in order to further solidify the point. Several exchanges together with the U.S. Securities and Exchange Commission are working to set up safeguards in order to monitor and set up safeguards for the occurrence of market manipulation through social media.