The Twitter news merry-go-round increases volatility in financial markets, study says

 
Jessica Morris
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People ride on a merry-go-round at Munic
Investors using social media are reacting to old news (Source: Getty)

Investors who threat the merry-go-round of news and opinion about stocks on social media as if it were brand new information are stirring up volatility in the financial markets.

While this will come as no to surprise to most market mavens, now researchers Pieran Jiao, Andre Veiga and Ansgar Walther over at Oxford University have been able to quantify by how much.

Their study "social media, news media and the stock market" compares how financial markets responds to signals from traditional news media with those from social media.

Read more: European Central Bank says Twitter can predict which direction stocks are heading

It found that the most talked about stocks on social media experience increased average volatility of about 50 per cent, and increased average trading volume of about 25 per cent lasting for a month, compared to stocks with no social media buzz.

But when it comes to traditional news media such as newspapers and magazines, the most heavily covered stocks experience less average volatility and trading volume by about 75 per cent and 40 per cent respectively.

"​These effects are statistically and economically significant. The difference between the impact of social and [traditional] news media is striking, and new to the literature on asset pricing and information," it said.