4.5 NEWS VS. NOISE
The growth of the highly influential blogs and large social networks online has blurred the line between news and noise regarding companies' business prospects. As stock price earnings multiples are based mostly on the sentiment of the investors regarding future earnings, even rumors spread throughout these new channels can move prices significantly.
Once a stock moves 5% or more in one direction or another, the move itself becomes news that is distributed throughout the traditional financial news outlets.
Financial websites, newsletters, and radio and TV broadcasters have all created a significant audience and are in a position to create news by providing opinions and analysis as a result of simply repeating or interpreting reporting from the traditional financial news media.
An indicator that news is very difficult to differentiate from noise comes from the fact that venture capital firms have invested a significant amount of money into new startup firms that focus on measuring the news sentiment coming from social networks such as Twitter and Facebook as well as influential blogs.
Blogs and social networks, especially, have the ability to spread rumors regarding new products at very high speeds. Multiple examples of how fast news can spread through these news channels have come from highly hyped products such as smartphones, games, electronics, and even movies.
One of the results of the rumors spread through these new channels has been a dramatic change in ...
Get The Handbook of News Analytics in Finance now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
