Real-Time Diffusion of Information on Twitter and the Financial Markets

Do spikes in Twitter chatter about specific firms precede unusual stock market trading activity for those firms, within a resolution of ten to forty minutes? If so, Twitter activity may provide useful information about impending financial market activity in real-time. We study the real-time relationship between chatter on Twitter and the stock trading activity of 96 firms listed in the Nasdaq 100, during 193 days of trading in the period from May 21, 2012 to September 18, 2013. We adopted a quasi-experimental design, in which we identified observations featuring firm-specific spikes in Twitter activity, and randomly assigned each observation to a ten-minute increment matching on the firm and a number of repeating time indicators. We examine the extent that unusual levels of chatter on Twitter about a firm portend an oncoming surge of trading of its stock within the hour, over and above what would normally be expected for the stock for that time of day and day of week. We also compare the findings from our explanatory model to the predictive power of Tweets. Our results suggest that, through monitoring of chatter on Twitter about firms listed on the Nasdaq 100, identifying firm-specific spikes in Twitter activity affords a non-trivial degree of foresight into oncoming surges in trading volume.