Stock Prices Rise and Fall with Facebook 'Likes'
A new study found that Facebook 'Likes' correlate with stock prices. As a company's number of Likes change over time, so does its price.
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Facebook might be investors' next divining tool. A former Wall Street analyst and current doctoral student in business has found that the number of "Likes" a company has on Facebook corresponds to that company's stock price, WNYC reported.
"It turns out that, yeah, popularity does seem to help brands," Arthur O'Connor told WYNC.
O'Connor examined the top 30 most-"Liked" consumer brands on Facebook, including Best Buy, Adidas and Abercrombie and Fitch. Over the course of a year, he recorded the brands' fluctuating Like counts as well as their stock price. In the end, he found that 99.95 percent of the fluctuations in stock prices correlated with changes in Facebook Like numbers.
Facebook Likes didn't cause changes in stock prices, but they're a good sign of how well brands fare on the market, WYNC reported.
Financial analysts already know that social media posts could provide insights into the health of a company. Many investors use computer programs that sift through Twitter and other feeds to automatically determine whether people feel positively or negatively toward a company, WYNC reported. Those curious about how such programs work can try free tools such as Sentiment140 or Tweetfeel.
Not all business experts are convinced that so-called sentiment analysis works, however. "I'm not yet convinced that this is particularly the right approach," James Liew, a professor of finance at New York University's business school, told WYNC. Much of the research about sentiment analysis comes from companies trying to sell their analysis software, so it tends to be biased, Liew said.