ROLE OF SOCIAL MEDIA IN INFLUENCING STOCK MARKET INVESTMENT DECISIONS

Abstract

Overview of the training The field of social media's impact on stock market investing is a relatively new area that combines finance, technology, and behavioral economics. This project was carried out as part of an educational program aimed at enhancing analytical abilities in market research, financial analysis, and the influence of digital media on investment decisions. The training encompassed extensive study of current investment strategies, analysis of social media trends, and foundational knowledge in behavioral finance theories like herd mentality, sentiment analysis, and information imbalance. As part of the training program, different platforms such as reddit, twitter (x), youtube, tiktok, and discord were examined to gain insights into how financial content is produced, disseminated, and comprehended by both new and seasoned investors. Real-life examples like the gamestop (gme) short squeeze, AMC theaters, and cryptocurrency trends were examined to understand how online communities impact investment decisions and market sentiment. Furthermore, the training encompassed the utilization of analytical tools like survey design, statistical software for data analysis, and a review of academic and market-based literature. This laid the groundwork for conducting empirical research and gaining insights that are applicable to the current digital investment climate. Objectives of the project The main goal of this project is to examine how social media impacts stock market investment choices, especially among individual investors. The study intends to investigate various aspects of influence, encompassing psychological, informational, and community-driven factors. Specific aims consist of: • To investigate the social media platforms that retail investors frequently utilize to access market-related information. • To examine the influence of social media sentiment (positive or negative) on investment choices. • To recognize behavioral patterns, such as herd mentality, fomo (fear of missing out), and overconfidence, that are influenced by social media usage. • To assess the trustworthiness and efficiency of investment-related information shared on social media platforms. • To evaluate the potential risks associated with social media-driven investing, including regulatory, ethical, and informational factors. iv Summary of the findings The project uncovered several significant findings that shed light on the expanding and intricate impact of social media on stock market choices: 1: Social media as a key source of news The survey and interviews conducted with retail investors, particularly those between the ages of 18 and 35, indicated that a substantial portion of them depend on platforms such as youtube, reddit, and twitter for up-to-the-minute market information, stock recommendations, and financial knowledge. These platforms are often favored over traditional sources like financial news channels and brokerage reports because they are easily accessible and have a more casual tone. 2: The Impact of Social Media on Consumer Behaviour Financial influencers and online communities have a significant impact on shaping investor sentiment. Platforms like r/wallstreetbets (reddit) and finance-focused tiktok channels have fostered a shared sense of belonging among retail investors. These influencers and groups frequently serve as thought leaders, whose endorsements can result in sudden surges in buying or selling activity. 3: Emotional and behavioral biases The study suggests that exposure to social media can make individuals more prone to cognitive biases. Numerous participants confessed to making hasty investment choices driven by hype, peer influence, or viral content, frequently neglecting to conduct their own research. This behavior is consistent with theories of herd mentality and confirmation bias, where individuals are more inclined to act if they observe others displaying confidence in a particular choice. 4: Sentiment influences fluctuations Sentiment analysis revealed that both positive and negative comments on social media can have a substantial impact on the short-term price fluctuations of specific stocks, especially those that are small-cap or highly speculative. The episodes featuring gamestop and AMC showcased how the collective sentiment of investors can disrupt traditional market dynamics, resulting in substantial price fluctuations. 5: Falsehood and hazard An alarming pattern began to emerge concerning the dissemination of false, misleading, or manipulative information. Certain influencers might endorse stocks they personally possess without adequately disclosing their ownership, which can result in conflicts of interest and fraudulent pump-and- dump schemes. Numerous retail investors are unable to assess the reliability of such content, leaving them susceptible to financial losses. v 6: The Importance of Our Result with Limitations Despite the potential dangers, social media also plays a crucial role in education. Websites such as youtube and discord offer instructional videos on basic and advanced analysis techniques, investment strategies, and risk management. Nevertheless, the quality and accuracy of educational content differ greatly, emphasizing the need for users to verify information from multiple sources. 7: Consequences of Our Outcome The existing regulations have not yet kept pace with the rapid impact of social media on investment choices. Although some areas are implementing rules for influencer disclosures and content verification, the enforcement of these regulations varies. As the content creation landscape continues to evolve, there is an increasing demand for ethical practices, platform accountability, and investor education to effectively navigate this dynamic environment.