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Twitter and the Stock News Echo Chamber That Whips Up Volatility

Anyone watching the stock market has seen this: a post hits Twitter containing old news, and investors react as if it were new.

A working paper by researchers at Oxford University suggests the phenomenon is prevalent, creating a source of excess volatility for investors. It found evidence that the unmediated flood of news and opinion that pours over the social media transom results in some stocks getting whipped around for weeks by the same facts.

Like many academic studies into equities, the Oxford one examined theories calling into question the market’s ability to process information with perfect efficiency, in this case something called the “stale news” hypothesis. It says that investors probably aren’t the automatons of rationality depicted in classical market models when they can’t even recognize when a story has been reported already.

“Twitter almost by definition stirs up repetition,” Ansgar Walther, the postdoctoral research fellow who co-authored the report, said in a phone interview. “People perceive old information as fresh. If everyone knew it was repeated stuff, the market wouldn’t react as much.”

Volatility climbs appreciably when a stock is mentioned more often on Twitter, and not just for a day -- the researchers noted an effect that is detectable a month later. The most talked-about stocks on social media exhibited volatility that was 50 percent greater than average...