Blaming Social Media for the Market Crash: Finger Should Point Elsewhere

It’s no secret that the stock market is falling faster than someone with cement shoes. The blame game focused on Standard & Poor’s (S&P) downgrading the United States’ credit rating from AAA to AA+. The markets reacted violently, dropping 635 points on August 8. It was enough to get many queasy about their financial futures.

The next day, the markets rebounded. But that didn’t stop the finger pointing from journalists and “experts.” A story in The Atlantic Wire’s technology section by Rebecca Greenfield placed blame on social media, saying it “could be making the market crash worse.”

I usually read these stories because it’s remarkable that they get published, in print or online. This quote is from the initial paragraph of the post:

“The media thinks it’s performing some sort of public service–informing the people–but it turns out that all the negative coverage, especially as its delivered (in) the Twittersphere, just makes things worse.”

With all due respect to Ms. Greenfield, the media IS performing a service by keeping people informed. Negative coverage is everywhere and it’s not just on Twitter. Sure, social media networks have allowed us to get news and information much more quickly. But does that mean our tweets about the market dropping over 600 points is the reason it will get worse (or better)?

On any given day, you’ll see someone you follow tweet something negative about an airline, their favorite team or product, or even an individual. However, you could find a plenty of figures to make a cause and effect relationship between something starting good and ending badly.

A study in 2008 by Indiana University found the mood on Twitter correlated with the value of the Dow Jones, with near 90-percent accuracy several days in advance. By looking at 9.8 million tweets during 10 months, the school apparently proved the correlation. But as with any study, there are important caveats. Especially since expectations aren’t the only thing that determine economic outcomes.

The market’s crash this week was the correlation of many things, including the S&P downgrading and our country’s debt discussions. A few million people tweeting what was going on didn’t cause the fall, nor will it effect the move back into large gains.

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