After the stock market crash of 2008, Bollen analyzed nearly 10 million tweets from that year. He found that when the level of panic rose on Twitter, the Dow would drop three or four days later.
The fate of the global economy is in doubt today following the United Kingdom’s decision to exit the European Union. Last night the British pound fell to a 30-year low. Prime Minister David Cameron is resigning. Mark Carney, governor of the Bank of England, called the referendum “the most significant, near-term domestic risk to financial stability.” This morning, within the first five minutes of trading, the Dow fell more than 500 points.
But long before all the votes were tallied—and years before officials finish negotiating the terms of the UK’s departure—Twitter had reached a consenus on the Brexit: This is a disaster.
And the consequences may well be that bad. Uncertainty has never been a friend to global markets, and uncertainty is just what Brexit creates in heaps, particularly for the British economy. But like never before, social media has the ability to amplify the angst that uncertainty creates. And the markets may well be responding to that enhanced anxiety.
There is a very real phenomenon of so-called ‘mood contagion’ that happens online.
To be clear, the social media masses aren’t the only ones predicting economic doom as a result of the Brexit. In an op-ed unsubtly headlined “The Brexit crash will make all of you poorer—be warned,” billionaire George Soros argued that a plunging British pound would make the country far more vulnerable to an economic crash than it was at the time of the global recession in 2008.
The markets are certainly responding to such admonitions. But mounting research shows that a feedback loop does exist between social media and the stock markets, in which online anxieties about the market’s response may feed into the response itself.