Analyzing the Impact of Social Media on Investment Trends

Social media platforms provide a useful means of exchanging and receiving information, yet can become vulnerable to scams and false leads (Estelami & Florendo 2021).

This research uses data from both the National Financial Capability Study (NFCS) and Investor Survey to investigate how social media are being utilized for investment information. As its dependent variable, respondents’ usage of YouTube, Facebook, Reddit, TikTok Twitter Instagram for investing-related purposes.

1. Social Media is Influencing Investment Trends

Social media is an innovative digital technology that facilitates connections among people through virtual communities. Social media platforms provide people with a way to access financial markets and investment opportunities such as stocks. Their popularity has contributed significantly to increasing retail investing through democratized information about markets.

However, it should be kept in mind that social media use may also lead to fraud and manipulation; individuals and groups may use misinformation or market sentiment manipulation techniques to promote fraudulent investments through these outlets. Furthermore, investors must become adept at recognizing and assessing any opportunities provided through these social channels before making decisions based upon them.

Researchers utilized data from the 2021 National Financial Capability Study to investigate consumers’ social media usage and investment decision-making. Results indicated that investors who relied heavily on social media for investment decision-making were younger, less likely to be women, and had lower objective financial knowledge compared with those who didn’t rely on such channels as an investment decision tool.

2. Social Media is Influencing Investment Decisions

Social media offers an easy and accessible way for investors to gather information on investment products. Investors can follow market trends and make decisions using their mobile phones; brokerage firms even offer tools that aggregate and analyze social media sources.

This study utilizes data from the 2021 National Financial Capability Survey (NFCS) to explore how people utilize social media for investing. The NFCS features both state and investor surveys with respondents using social media for investment decisions serving as the dependent variable.

Results show that using social media for investment decisions is associated with lower objective and subjective investment knowledge, younger individuals, and a greater likelihood of holding microcap or penny stocks in your portfolio (Gosal, Astuti & Evelyn 2021). Furthermore, using social media for investing decisions increases objective knowledge while decreasing subjective knowledge (as evidenced in prior research). These conclusions support previous findings indicating young adults are influenced by peer influence more when making investment decisions (Gosal et al 2021). Finally, social media usage leads to lower objective knowledge as well as increased knowledge on microcap or penny stocks within investment portfolios – findings consistent with previous findings that young adults influenced by peers when making investment decisions (Gosal et al 2021). Finally using social media to invest is associated with holding microcap or penny stocks within investment portfolios (Gosal et al 2021).

3. Social Media is Influencing Investment Behavior

Social media provides investors with a great way to learn about a company before making an investment decision. Investors can read reviews from fellow investors, track real-time financial performance metrics and monitor environmental, social, and governance (ESG) issues related to it.

Research provides support for the theory that younger generations are being encouraged by social media to invest and take part in the stock market through participation and investment decisions. We conducted this research using data from the 2021 National Financial Capability Survey to examine this relationship and found that social media users were less likely to be female and held less assets compared with their non-using counterparts; furthermore they possessed lower objective investment knowledge with higher subjective investment knowledge levels than their non-using peers.

Social media users were also more likely to invest for various investing motivations than non-users of social media; specifically entertainment/excitement/connecting with others or social responsibility were often among these motivations.

4. Social Media is Influencing Investment Strategy

As social media platforms continue to proliferate and advance, their influence over investment trends increases exponentially. Thanks to democratized information and influencers such as Sonia G, investors need to remain cognizant of any possible ramifications social media could have on their investments and financial decisions.

Researchers conducted a recent study to explore the demographic and financial characteristics of consumers who utilize social media for investing. Their results reveal that those relying on social media for investment tend to be significantly younger, less likely to be women and possess lower subjective investment knowledge compared to non-social media users. Additionally, social media users were more likely to invest for entertainment/excitement/connecting or as an avenue towards being socially responsible compared with non-social media users.

Investors and traders should use social media with caution, supplementing it with comprehensive research, critical thought, and advice from financial experts in order to make sound financial decisions that meet their financial goals. By doing so, they can avoid falling prey to social media hype while making sound financial decisions that align with their goals.