Using Twitter to capture an investor’s attention

Today almost every company has a presence on Twitter, regularly tweeting their daily news. But do these 140 character messages have any impact?

Now new research has found that tweets are influential and can indeed have a marked impact on investors. Academics have discovered that sending information via Twitter increases the profile of smaller companies that do not normally attract much media attention.

Traditionally investors have gleaned much of their market information from the news media. But Elizabeth Blankespoor, an assistant professor of accounting at Stanford Graduate School of Business, Gregory Miller, an associate professor of accounting and Hal White, an assistant professor of accounting, both at the University of Michigan suspected that traditional methods of acquiring information were changing. They wanted to examine new technologies which were allowing companies to communicate with investors instantly and directly.

While all aspects of technology are used to communicate with investors, such as email alerts and RSS feeds, the academics thought that Twitter was very much the social media tool of choice.

They focused their research on those tweets that contained links to a company’s full announcement. They sifted through tweets relating to technology companies over a two-year period and then linked them with trading figures about the liquidity of each company’s stock.

They discovered that when smaller, lesser known companies tweeted their news, their bid-ask spreads narrowed significantly. Tweeting they discovered, “measurably increased the market liquidity of stocks”. However, this was not the case for bigger companies whose tweets did not seem to make much of an impact with investors.

The academics says that Twitter can help to “reduce the information disadvantage of small companies”.