The gif indicator: can social media memes predict stock performance?

GIF images that traders post on social media can predict stock market performance in the short term. This is the conclusion reached by researchers from Hong Kong and California in a joint paper. They argue that animated visual content better conveys traders' sentiment than text posts and can predict stock movements.

Researchers analyzed 65 million posts on the social network Stocktwits, where traders share investment ideas, from 2020 to 2024. They tracked which GIF images traders most often added to posts that they themselves rated as "bullish" and which ones they rated as "bearish". Stocktwits gives you the opportunity to make an appropriate note when you publish a post.

For example, if traders frequently posted a picture of Elon Musk smoking and clicked the "bearish" button under the post, the algorithm recognized that the picture was associated with pessimism. As a result, the scientists developed a daily index of market sentiment called GIFsentiment.

The GIFsentiment indicator grows when traders actively post "optimistic" gifs. On such days, securities from the S&P 500 index rise in price, trading volumes grow, and funds shift money from bonds to stocks, the researchers wrote.

But rosy moods tend to be short-lived. The authors of the paper concluded that the surge in the publication of such images may actually reflect the peak of euphoria, which will inevitably be followed by a decline in stocks. According to the study, within four weeks of such excitement, stocks went into negative territory.

The researchers explain it this way: when traders react to news, they publish text posts on social networks and use GIFs to convey the atmosphere of the market. When the atmosphere gets too heated, market vulnerability increases.

The study states that the correlation persists even taking into account such factors as the release of corporate news and earnings reports. At the same time, this effect is strongest in shares with high volatility, in particular, small-cap stocks.

This article was AI-translated and verified by a human editor