You've probably heard, thanks to the world of constant media coverage that we live in, that the stock market's not doing so well. If you head to any news site, scroll through your Twitter feed, or if pick up a paper (if people still do that), you'll see plenty of doom and gloom headlines. The media thinks it's performing some sort of public service--informing the people--but it turns out that all the negative coverage, especially as its delivered the Twittersphere, just makes things worse.
What people are talking about on Twitter both predicts and affects the stock market. After the market crashed back in 2008, researchers at the Indiana University found the mood on Twitter correlated with the value of the Dow. Analyzing more than 9.8 million tweets from 2.7 million users during 10 months in 2009, the researchers discovered with 87.6 percent accuracy that the mood on Twitter predicted the daily up and down changes of the market three to four days in advance. The study argues the mood isn't just a correlation. Another study by John R. Nofsinger out of Washington State found similar results:
We find that events in the social, political, cultural and economic sphere do have a significant, immediate and highly specific effect on the various dimensions of public mood.We speculate that large scale analyses of mood can provide a solid platform to model collective emotive trends in terms of their predictive value with regards to existing social as well as economic indicators.
The same logic can be applied to this week's economic downturn. The media is fixated on the economy and the mood is certainly dour. Last month the debt ceiling's will-they or won't-they back and forth dominated news coverage as you can see from the following Pew chart.