Can Social Media Predict Companies' Share Prices?
Can the number of Facebook fans a company has tell you how its stock is performing?
At least one researcher thinks so. Arthur O’Connor, a doctoral student at Pace University in New York, is testing whether social-media popularity–as measured by Facebook “likes,” Twitter followers and YouTube views–is correlated with stock prices.
In a pilot study, Mr. O’Connor found a “statistically significant” correlation, although he tested only three brands–Starbucks Corp., Nike Inc. and Coca-Cola Co.–over a 10-month period. The more social-media fans a brand had, the better its stock was likely to do, even accounting for general market conditions.
The finding held true even though the three companies studied had very different returns. During the test, Starbucks stock increased 29 percent, Nike grew 14 percent and Coke fell by nearly 6 percent.