title: The Effects of Twitter Sentiment on Stock Price Returns.
abstract: Social media are increasingly reflecting and influencing behavior of other complex systems. In this paper we investigate the relations between a well-known micro-blogging platform Twitter and financial markets. In particular, we consider, in a period of 15 months, the Twitter volume and sentiment about the 30 stock companies that form the Dow Jones Industrial Average (DJIA) index. We find a relatively low Pearson correlation and Granger causality between the corresponding time series over the entire time period. However, we find a significant dependence between the Twitter sentiment and abnormal returns during the peaks of Twitter volume. This is valid not only for the expected Twitter volume peaks (e.g., quarterly announcements), but also for peaks corresponding to less obvious events. We formalize the procedure by adapting the well-known "event study" from economics and finance to the analysis of Twitter data. The procedure allows to automatically identify events as Twitter volume peaks, to compute the prevailing sentiment (positive or negative) expressed in tweets at these peaks, and finally to apply the "event study" methodology to relate them to stock returns. We show that sentiment polarity of Twitter peaks implies the direction of cumulative abnormal returns. The amount of cumulative abnormal returns is relatively low (about 1-2%), but the dependence is statistically significant for several days after the events.
authors.affiliation: IMT Institute for Advanced Studies, Piazza San Francesco 19, 55100 Lucca, Italy.
authors.forename: Gabriele
authors.initials: G
authors.lastname: Ranco
authors.affiliation: Jožef Stefan Institute, Jamova 39, 1000 Ljubljana, Slovenia.
authors.forename: Darko
authors.initials: D
authors.lastname: Aleksovski
authors.affiliation: IMT Institute for Advanced Studies, Piazza San Francesco 19, 55100 Lucca, Italy; Istituto dei Sistemi Complessi (ISC), Via dei Taurini 19, 00185 Rome, Italy; London Institute for Mathematical Sciences, 35a South St. Mayfair, London W1K 2XF, United Kingdom.
authors.forename: Guido
authors.initials: G
authors.lastname: Caldarelli
authors.affiliation: Jožef Stefan Institute, Jamova 39, 1000 Ljubljana, Slovenia.
authors.forename: Miha
authors.initials: M
authors.lastname: Grčar
authors.affiliation: Jožef Stefan Institute, Jamova 39, 1000 Ljubljana, Slovenia.
authors.forename: Igor
authors.initials: I
authors.lastname: Mozetič
mesh_terms: D057218:Blogging; D003132:Commerce; D005376:Financial Management; D006801:Humans; D020407:Internet; D061108:Social Media; D012944:Social Support