The coronavirus has become an “infodemic”, with social and news media impacting investor behaviour in previously unseen ways.
Research from financial data provider Refinitiv has found that spikes in news and social media posts containing words like “infectious disease” are followed by a drop in stock prices as investors scramble to defend their portfolios against a threat they don’t necessarily understand.
“This is the first pandemic that’s occurred during the age of social media,” Richard Goldman, director of Refinitiv’s quant business in Asia, told Investor Daily.
“We’ve had a 24/7 news cycle, but it wasn’t at the crescendo it is now, where we have never-ending news and the impact that has on sentiment.”
Through Refinitiv’s partnership with MarketPsych, a behavioural economics firm, they’re able to perform complex quantitative and content analysis on thousands of social media and news websites. What Refinitiv has found is that, as media coverage of an issue like the coronavirus increases, market sentiment decreases.
“Starting towards the end of January, it really shifts for Australia,” Mr Goldman said.
“People started talking about it with concern. And that took about two weeks before it started hitting the prices of the markets. A terrorist attack or an act of war, they’re more finite…some things creep in, like the virus. It’s occurred over a couple of weeks before this sentiment shift resulted in a shift in prices.”
An impact on sentiment can manifest in a number of ways, Mr Goldman says – whether it’s the panic buying of toilet paper seen in Australia and Hong Kong or the mass sell-offs seen in global markets over the last few weeks.
“We recognise that the markets don’t always respond to just the facts,” Mr Goldman said.
“They respond to whatever information is being thrown at them.”