To the Moon: Analyzing Collective Trading Events on the Wings of Sentiment Analysis

ArXiv ID: 2308.09968 “View on arXiv”

Authors: Unknown

Abstract

This research investigates the growing trend of retail investors participating in certain stocks by organizing themselves on social media platforms, particularly Reddit. Previous studies have highlighted a notable association between Reddit activity and the volatility of affected stocks. This study seeks to expand the analysis to Twitter, which is among the most impactful social media platforms. To achieve this, we collected relevant tweets and analyzed their sentiment to explore the correlation between Twitter activity, sentiment, and stock volatility. The results reveal a significant relationship between Twitter activity and stock volatility but a weak link between tweet sentiment and stock performance. In general, Twitter activity and sentiment appear to play a less critical role in these events than Reddit activity. These findings offer new theoretical insights into the impact of social media platforms on stock market dynamics, and they may practically assist investors and regulators in comprehending these phenomena better.

Keywords: Social Media Analytics, Sentiment Analysis, Stock Volatility, Market Microstructure, Equity

Complexity vs Empirical Score

• Math Complexity: 2.0/10
• Empirical Rigor: 6.5/10
• Quadrant: Street Traders
• Why: The paper uses standard regression models and financial volatility estimators without advanced derivations, but its empirical component is strong with real Twitter API data, 2 million tweets, VADER sentiment analysis, and defined backtest-like volatility forecasting regression models.

  flowchart TD
    A["Research Goal:<br>Correlate Twitter Sentiment & Activity<br>with Stock Volatility"] --> B{"Methodology"}
    B --> C["Data Collection:<br>Twitter API +<br>Yahoo Finance"]
    C --> D["Preprocessing &<br>Sentiment Analysis<br>VADER/Lexicon"]
    D --> E["Statistical Modeling:<br>Correlation &<br>Regression Analysis"]
    E --> F["Outcomes & Findings"]
    F --> G["Significant correlation:<br>Twitter Activity vs.<br>Stock Volatility"]
    F --> H["Weak correlation:<br>Sentiment vs.<br>Stock Performance"]
    F --> I["Conclusion:<br>Twitter impact < Reddit<br>impact"]