Do More Fans Equal Higher Stocks Prices?
According to Arthur O’Connor and Don Tapscott the answer is yes.
Reported in The Wall Street Journal, Mr. O’Connor found in a pilot study a “statistically significant” correlation between social media popularity and stock prices. Although he only tested three brands, Starbucks, Nike and Coca-Cola over a 10-month period, the more social media fans a brand had, the better their stock was likely to do.
The study’s results “suggest the powerful effect of social media ‘electronic word of mouth’ on consumer behavior and corporate brand performance,” Mr. O’Connor says. Mr. O’Connor is a doctoral student at Pace University in New York that is testing social media popularity as measured by Facebook likes, Twitter followers and YouTube views.
Also recently interviewed on Fox Business News, Don Tapscott says that social media activity and stock price are related. Mr. Tapscott does clarify though that there is a correlation and not causality. He gives as an example that although shoe size is related to your reading ability; it does not mean that big feet cause you to be a better reader. He then goes on to explain that social activity will become a good predictor of stock price activity.
There are many skeptics out there still saying that it’s too early to take much stock in these findings as we need more studies on lesser known companies to see if the correlation applies across smaller industries. This will become another way to measure the effectiveness of a social media campaign though. What other ways are you measuring the effects of your online buzz?