An Analysis of How Twitter Impacts Financial Markets

Abstract

In this paper, I examine how social media affects cryptocurrencies and more traditional stocks. I use data on Twitter posts in combination with daily stock prices to estimate the causal effect of a tweet on stock and coin prices. To do this, I use a difference-indifference regression with index funds as my control group, which allows me to capture general market trends that coins and stocks would follow if not for intervention. I find that tweets have a significant impact on cryptocurrencies that last up to three days after the post. The increase in coin prices is driven by tweets from Tyler Winklevoss and tweets about Tezos and Ethereum specifically. Meanwhile, Twitter posts have no impact on more traditional stocks. These results suggest that social media can provide the public with valuable information in real time for fast moving and volatile crypto assets, while their effects on more stable and institutionalized traditional stocks are more muted.