Impact of Social Network in Capital Markets

2575 Words May 5th, 2013 11 Pages
Acknowledgement
Before going to the detail about our report, we would like to pay our gratitude to the Almighty Allah for helping us to prepare this report. We would also like to thank our honorable faculty in charge, Sayba Kamal Athoi (SBK) for giving us such a nice assignment to implement our knowledge in the context of the real world.

Abstract

There has been an increasing use of the social networking sites to aid in the decision making process for making investments in the capital markets around the world by both individuals and organizations. Social networks enable a faster and easier access to information regarding capital markets to all. According to various researches, data from the social networking sites can be used to create
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The research by Indiana University Professor Johan Bollen shows that their algorithms are capable of predicting the direction of DJIA with 87 percent accuracy, up to four days before the actual move happens in the market. Here is an example of their findings.

In the graph the blue line represents the Dow Jones Industrial Average and the red line represents the predicted model of stock prices based on twitter updates. The trends are separated for better viewing in the middle and bottom graphs. From the graph we can see that when delayed by three days, the trends in predicted model of stock prices overlaps meaningfully with the Dow (top). However, events that the public cannot predict, like the bank bailout pointed to in the top, can disrupt the accuracy of the predicted model of stock prices. b) Another research study says it has found a correlation between the social media popularity of key brands and their share price, and suggests that it might be used as a lead indicator to determine the trend of the stock price as well. The author of the study, Arthur O'Connor, a post-doctoral student at Pace University said that he was able to reliably predict the daily stock prices of three major stocks over a 10-month period. He also made three predictions, claiming that Wal-Mart, Viacom and Sony each had seen "major recent growth in key social media profiles," implying that the share prices of those stocks could