Predicting the Future of Investor Sentiment with Social Media in Stock Exchange Investments: A Basic Framework for the DAX Performance Index

Abstract

Today, social media are emerging as a new platform for information exchange, discussions, and as a source of news. Many companies utilize social media platforms as marketing tools or for promotional purposes as a part of a marketing mix. Today, also online brokers provide online discussion forums, blogs, networking tools, educational material, or networking platforms as part of their marketing mix in order to directly reach the end consumer. Thus, today, social networks provide a pool of collaborative knowledge, which also allows the understanding of collaborative pricing behavior on stock markets. This includes e.g. specialized platforms providing collaborative knowledge around the topic of stock exchange trading via blogs, wikis, or communities. It's obvious that social media therefore provide insights into market sentiments and investing behavior, due to the collaborative knowledge and 'shared mind' of many investors. Social media therefore might act as a market sentiment indicator far beyond the currently existing sentiments based e.g. on questionnaires or quantitative consumer spending indexes. The analysis of the content can provide more insights into behavioral finance on stock markets and might lead to more real-time and accurate sentiments. Existing examples show the relation e.g. between discussions on social media and movie sales. It's obvious that social media based sentiment analysis provides new insights into the relation between stock exchange pricing and investors' sentiments and eventually into new behavior financing models. Example services, as e.g. StockTwits demonstrate the efficiency of social media as a tool (StockTwits, n.d.).Currently the trend of social media attempts to measure brand value, or market sentiments of movies or products. However, their impact as sentiment measurement

News Sentiment Impact Analysis (NSIA) Framework

“…Stock returns (intraday, daily, monthly, annually) have been studied widely, and considered to be the most popular performance measure of impact on financial markets. However, the literature shows there are many other measures that could be indicators for impact such as liquidity, volatility (Lugmayr, 2013).…”

índice de sentimiento en las redes sociales y su impacto en los rendimientos del S&P 500

“…Contemporary social media plays a significant role in affecting sentiments and decisions in the stock market. Access to news and information is crucial for successful investment strategies, with social media serving as an auxiliary resource for decision-making, facilitating the rapid dissemination of financial news, sometimes even faster than traditional news tickers (Lugmayr, 2012).…”