Contrary to expectation, markets are very emotional places…and individual share prices are often influenced by sentiment as much as the fundamentals. Every IR and PR professional knows this and they know the power that 3rd parties like the financial press have to drive sentiment.
Many believe that social media can have a similar impact but there’s not been much hard data to support that view.
However as reported, our recent Social Media and the City study DID find some pretty interesting links between strong social media performance as measured by PRINT™ and positive share price movements.
The detail is in the study but, for the statistically challenged (like me) the scattergraph below shows the correlation between the PRINT™ Receptiveness score at the beginning of November and the monthly change in share price to 28 November. These were all statistically significant (r > 0.207, N = 100, p < 0.05). This effectively means that if one variable were to rise or fall, chances are that the other would too. The p bit means there is at least a 95% probability that this relationship is not happening by chance – a level at which studies in the social sciences are generally accepted to be true.
On the basis of these initial findings we think someone should fund a longer, more detailed study to determine whether or not this represents a real and consistent lead indicator.
We’re open to offers!
This is a really interesting piece of research and I agree it would be good for someone to fund further research into it. I have a few questions and comments about the research methodology and the data…
Firstly, it’s not clearly shared how ‘social media performance’ is being measured. If it takes into account sentiment in social buzz around the brand for example, then this will be impacted not just by the brand’s ability to use social media, but external factors such as overall sentiment towards the brand, which will of course affect share price. So if people start to like your brand more in general, then social media sentiment will improve, as well as share price. It doesn’t mean that it’s your social media success that’s driving the share price.
Secondly, ‘social media success’ at a one off point in time has been used as a comparison with the change in share price over one month. Would the change in social media success over the same time would be a better comparative metric?
Thirdly, a correlation of course doesn’t equal causation. It may be that a healthy business whose share price is going up is more able to invest in a strong social media programme, leading to a high ‘receptiveness score’, rather than social media success driving share price. Of course the opposite may be true.
Finally, am I correct in that the receptiveness scores range between 1 and 500, and increasing one point on this scale is correlated with a 0.2% share price increase?
Thanks,
Beth
Hi Beth,
First off, thanks for taking the time to look at the data. Let me take a stab at some of your questions.
1. How is ‘social media performance’ being measured?
As outlined in the report, this is measured using our PRINT™ methodology, details of which can be found extensively on this site. http://www.sociagility.com/print is a good starting place. It does not measure wider buzz or sentiment, but purely the performance of the company’s ‘owned’ social media assets.
2. Would the change in social media performance over time be a better comparative metric?
It may, and that’s part of what we are suggesting in terms of further research. That said, we measured social media performance over a full week, not just a single point in time, in order to even out any spikes or troughs, then compared against multiple share price movement periods.
3. Might a healthy business whose share price is going up more able to invest in a strong social media programme, leading to a high receptiveness score?
Possibly, but as you (and we say) we need to be very careful using phrases like ‘leading to’ as that implies a directionality that may not exist. However, better receptiveness is not just about (and actually, very rarely about) how much resource a company throws at social media, but how focused they are.
4. Is increasing one point of the receptiveness scale correlated with a 0.2% share price increase?
In this research we were focused on the correlation between the two sets of variables, and the findings suggest that if one increases/decreases the other will likely do the same. Further linear regression analysis would be required to determine the kind of relationship you are suggesting.
I hope that’s helpful.