CRA Insights

Leveraging social media analytics to navigate market volatility

February 26, 2021
Data infecting a finger print identity on a screen to illustrate hacking and cyber crime

The “short squeeze” phenomenon of early 2021 has created market losses of more than $20 billion, as masses of investors, galvanized by online public commentary, funneled extraordinary amounts of money into a few companies hit hard by the COVID-19 pandemic, impacting short positions and option strategies.

While volatility comes with the territory in financial markets, these recent events appear to be the first time that a large number of investors’ trading activities were driven by social media. This article considers whether this type of activity can be detected before it markedly affects portfolios.

The extraordinary trading patterns seen across these stocks have left a paper trail of activity that can be used to develop predictive algorithms going forward. The fact that correspondence is occurring out in the open presents a unique opportunity to leverage technology to inform investors. Using sophisticated analytics tools to monitor discussion threads across multiple social media platforms and online forums, investors could:

  1. Identify social media posts that indicate similar coordinated events before they occur;
  2. React more quickly to anomalous investment activity and protect positions;
  3. Establish routine tracking and monitoring algorithms covering large volumes of commentary potentially focused on specific individuals, ticker symbols, and key terms;
  4. Compare and contrast stock price movements with contemporaneous conversations and social media posts;
    Proactively monitor chatter around equities with similar profiles (e.g. 25%+ short interest); and
  5. Create automated real-time alerts to notify investors if the aggregate mentions of a specific stock ticker symbol start spiking on social media and online forums.

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