In theory, ‘noise’ in financial markets shouldn’t have an effect on stock prices over any meaningful time frame. For every mis-informed bull there’s an equally noisy bear and the two should cancel each other out leaving only the truth of a company’s true underlying performance to guide the stock price higher or lower.
In practice, however, we know it’s not that simple. The paper highlighted today from Jia Li of the Duke University et al is the first comprehensive study of ‘noise’ in China’s stock markets and covers the period from 2008 to 2018. The researchers drilled 60-million social media posts over the period (from Eastmoney) analyzing around 6.6-billion (no, that’s not a typo) Chinese characters to see if future period stock price performance can be reliably determined by this noise; and they can.
Where this study differs from others is in the type and volume of data that’s been raked over. It may be the findings don’t have application in other markets as China’s stock markets are both young and still (nearly 80%) very Mom and Pop driven but the conclusions are important for users of those markets and ones (like Hong Kong and NASDAQ) that are influenced by them.
You can access the paper in full via the following link Measuring China’s Stock Market Sentiment
Happy Sunday.