Thesis

Changes in main stream and social media have created a chance to take advantage of media’s effects on the investment market. The media networks have gotten so large, that they now exert force on the markets on their own. Investors can see this effect in the way a stock responds after an actual event and then compare that to the effects of news events that are subsequently created. While comparing these events, there are times when the media articles increase in volume preceding increased volatility in the market. This could indicate a potential leading indicator for stock, sector, and market movements.

Several questions need to be answered in order to confirm this;

1. Can a media article have an effect on a security’s volatility and price aside from the effects of the event reported on?    

2. Most articles about a stock are written because of an event related to the stock.  Can the effect of the event be separated from the effect of the article in a manner that would allow an investment strategy to take advantage of the difference?

3. If the creation of a standardized indicator using this information is possible, will it be a lagging or leading indicator?

4. Does this affect stocks throughout market capitalization ranges?

If data does support this thesis; businesses, individuals, and institutions should be able combine the created leading indicator smoothly into existing investment strategies. Even without confirmation of all of these questions, there is still the potential for combination of the data into investment strategies.

 I will be using research gathered from news search engines, social-media analysis data bases and stock market data to make comparisons between the actions of media and the movement in the stock market. I will be looking for increases in the volume of media articles about a company directly before an increase in volatility of the stock that company. This would allow for the creation of an entry indicator. The articles would actually have to be read in order to get a sense of market direction. After the stock’s initial movement, consolidation should occur after a decrease in the volume of news articles, signaling the exit point to the trade.