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Bull Bear Balance: A Cluster Analysis of Socially Informed Financial Volatility

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  • Jonathan Manfield
  • Derek Lukacsko
  • Th'arsis T. P. Souza

Abstract

Using a method rooted in information theory, we present results that have identified a large set of stocks for which social media can be informative regarding financial volatility. By clustering stocks based on the joint feature sets of social and financial variables, our research provides an important contribution by characterizing the conditions in which social media signals can lead financial volatility. The results indicate that social media is most informative about financial market volatility when the ratio of bullish to bearish sentiment is high, even when the number of messages is low. The robustness of these findings is verified across 500 stocks from both NYSE and NASDAQ exchanges. The reported results are reproducible via an open-source library for social-financial analysis made freely available.

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  • Jonathan Manfield & Derek Lukacsko & Th'arsis T. P. Souza, 2018. "Bull Bear Balance: A Cluster Analysis of Socially Informed Financial Volatility," Papers 1811.10195, arXiv.org.
    • Handle: RePEc:arx:papers:1811.10195
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    References listed on IDEAS

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    1. Th'arsis T. P. Souza & Tomaso Aste, 2016. "A nonlinear impact: evidences of causal effects of social media on market prices," Papers 1601.04535, arXiv.org, revised Mar 2016.
    2. Paul C. Tetlock & Maytal Saar‐Tsechansky & Sofus Macskassy, 2008. "More Than Words: Quantifying Language to Measure Firms' Fundamentals," Journal of Finance, American Finance Association, vol. 63(3), pages 1437-1467, June.
    3. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    4. Zhi Da & Joseph Engelberg & Pengjie Gao, 2011. "In Search of Attention," Journal of Finance, American Finance Association, vol. 66(5), pages 1461-1499, October.
    5. Zheludev, Ilya & Smith, Robert & Aste, Tomaso, 2014. "When can social media lead financial markets?," LSE Research Online Documents on Economics 57376, London School of Economics and Political Science, LSE Library.
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