The Impact of Alternative Data and Social Media Sentiment on Stock Market Movements

Abstract

Investors' evaluation and interpretation of financial markets have shifted as a result of the emergence of alternative data. Even if conventional sources like earnings calls and company reports are still useful, newer information sources, such as social media, are becoming more and more significant when it comes to making investment decisions. This study analyzes how tweets can affect stock prices and trading behavior, using Twitter as a major source of alternative data. We collected tweets about companies such as Tesla, Apple, Boeing, Toyota, and Snapchat for our analysis. Before and after every tweet, we observed changes in trading volume and stock prices. We then contrasted these trends with those of company-specific exchange-traded funds (ETFs) and more general market indices like the S&P 500 and Nasdaq. This method helped in isolating the impact of specific tweets from broader market trends. Based on our research, tweets can cause significant and quick market reactions, particularly when they come from well-known figures like Kylie Jenner, Donald Trump, and Elon Musk. Specifically, despite stable market indexes overall, Tesla's shares saw a sharp drop after Musk said in a 2020 tweet that the company's current price was "too high." Similarly, Snapchat's value greatly declined after Kylie Jenner criticized the company in a tweet. Following such tweets, trade volumes increased by 15% to more than 600%, showing how sentiment can influence market behavior more so than traditional financial indicators. The findings show alternative data possibilities as well as its limitations. Although social media gives investors rapid access to public sentiment, it also presents the risk of unexpected volatility. In conclusion, alternative data may enhance market knowledge, but it must be evaluated carefully to prevent premature conclusions or inflated responses.