Economy and Finance
83 Effect of Social Media on the Stock Market
STS Chapter
Effect of Social Media on the Stock Market
By: Garrett Koceniak
Introduction:
Over the past decade, we have seen an exponential rise of social media, with nearly every American today having access to it, spending on average 2 hours and 23 minutes per day consuming content (Soax, 2024). This has only increased as the algorithms get more effective and more people get drawn in. So, how does this affect the stock market?
Social media apps like Instagram, YouTube, Reddit, etc. allow people to share what stocks they are investing in, and creators with a big following can cause an avalanche of people to follow their moves, causing a stock to greatly increase or decrease in value. The effects of this are especially seen in smaller cap stocks, where only a little bit of buying pressure can cause the stock to double, triple, or even 10x its value in short periods of time. Most of the time, the gains in these stocks don’t last very long because people end up selling to cash out, while some people are left in the dust, losing lots of money after buying the stock at its peak. This has created a lot of volatility in the stock market in recent years.
Along with the influence of social media causing increased volatility, investing apps like Robinhood and Coinbase have made investing more accessible to everyday people, as apps like these have set the precedent for commission-free trading. This has allowed the everyday person to trade whenever they want, while in the past, investing was more focused on the long term as investing firms charged a commission every time you bought a stock, making it impractical to buy and sell on a daily basis. While this is great for empowering small investors, this, along with social media influence, can also lead to overhyped stocks, causing their prices to skyrocket and then crash when people start selling. This has created bigger risks, but it also shows how regular investors can work together to challenge the power of big Wall Street firms through collective, organized moves like short squeezes.
Connection to STS:
The effect of social media on the stock market is connected to STS in many ways. First, we have had significant technological advancement in social media, with platforms like Twitter, Reddit, and YouTube, along with trading apps like Robinhood, that enable the rapid spread of financial information and influence. Everyone now has a phone to access this information, and this is thanks to technological innovation. Second, social media fosters communities where individuals share ideas and strategies. This leads to collective actions of people putting money into the same stock, which reflects how technology shapes societal behaviors and group dynamics. Finally, this new era of social media influence allows society to challenge traditional systems and create more economic opportunities for working-class people in our society.
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