Social Media and Capital Markets. An Overview

A growing body of research and practical applications employ social media data as a proxy for complex behavior of a society. This paper provides an overview of academic research related to link between the social media and capital markets. Its theoretical rationale is predominantly defined by behavioral finance. Behavioral finance augments standard model of efficient markets and considers less rational factors like investors’ sentiment or public mood as influential for asset pricing or capital market volatility. In this context, social media is a novel tool which enables to collect the data about such less rational factors at the level of a society. The paper introduces social media data from technical and economic point of view. Further, it contributes to the theoretical construction of the transmission mechanism between social media and capital markets currently missing in the literature. Subsequently, the paper summarizes the main findings in this field and outline its future prospects.