Assumptions
Media Correlates with Market Behavior
Media sentiment and volume, particularly from high-engagement sources, are assumed to correlate
with short-term stock price and volatility changes, influencing investor behavior.
High-Engagement Posts Drive Market Movements
High-engagement posts (e.g., upvotes, impressions) and influential figures (e.g., Elon Musk, Trump)
are assumed to have a stronger impact on market movements due to their reach and public profiles.
Machine Learning is Accurate
Machine learning tools, like sentiment analysis and sector classification, are assumed to accurately
quantify media coverage and its correlation with sector-specific market activity.
Core Data Assertions
1. Negative sentiment in media consistently aligns with short-term stock price declines
The Extreme Sentiment Days Analysis chart shows that when Reddit sentiment was extremely negative, Tesla’s stock often dropped significantly the next day. In contrast, positive sentiment days were followed by a mix of neutral or positive. This makes it clear that very negative Reddit activity is more likely to lead to sharp price changes, especially in a downward direction. This also reflects the dynamics discussed in the "Reddit Revolt" article about GameStop in The Journal of Finance, where highly charged and coordinated sentiment on r/wallstreetbets directly influenced large institutional market reactions. It reinforces that extreme sentiment on Reddit can indeed drive tangible price movements, especially when driven by collective behavior.
2. Extreme sentiment on Reddit, especially when highly negative, is followed by sharp market reactions
Using the Sentiment Strength vs. Price Volatility charts, we can see how there’s somewhat of a link between strong emotional sentiment and how much Tesla’s stock price moved during the day, but overall, there wasn’t a strong or consistent partner. This means emotional media might increase volatility sometimes, but it doesn’t guarantee a big price swing. This aligns with research by Wan et al., which identifies correlations between sentiment shifts and stock volatility across large datasets of news. Their findings similarly caution that while sentiment contributes to volatility, the relationship is complex and inconsistent across time, suggesting the need for more nuanced models of media influence.
3. Higher sentiment intensity and post volume contribute to market volatility, but not always predictably
Using the Sentiment Strength vs. Price Volatility charts, we can see how there’s somewhat of a link between strong emotional sentiment and how much Tesla’s stock price moved during the day, but overall, there wasn’t a strong or consistent partner. This means emotional media might increase volatility sometimes but it doesn’t guarantee a big price swing.
4. Trading volume often spikes alongside Reddit activity, but not Musk tweets
Our comparison between Reddit comment volume and tweet frequency versus trading volume reveals a stronger relationship between Reddit engagement and trading spikes. Musk’s tweets, while emotionally charged, don’t consistently trigger volume changes, suggesting Reddit’s collective activity may have a more tangible effect on market behavior. Research by the University of Warwick found that higher volumes of financial news coverage correlate with increased investor trading activity. Their study supports the idea that sheer quantity of media engagement, such as Reddit comment volume, can help explain spikes in trading volume even without a direct sentiment effect.
