The evil effects of social media on capital markets

Social media is the word that has really broken all the barriers that were present across the world for long decades. Not only it has re-defined the meaning of life for us but introduced new concepts that have really helped us in many colorful ways.

However, of late some tremors have landed in the lives of some investors that are nothing more than a wake-up call for them than anything else.

Today’s post is about the instances of social media influencing the capital markets across the world especially America.The evil effects of social media on capital markets

The motive behind writing the post is to make investors aware about the fact that social media is very powerful even to create losses at the capital markets.

Recently, an incident was noticed in US where fake message on microblogging site Twitter led to sharp selling in the American bourses. This resulted in considerable losses to numerous investors especially those who qualify under the retail category.

Not only this, in another incident that was witnessed last month a fake tweet of similar nature did rounds in America stating that US President Barack Obama was injured in a bomb explosion in the White House. This again resulted in panic among the investors and as anticipated resulted in heavy selling of stocks. As per the estimates of the time, the market capitalization in the range of $ 130 billion was wiped off in a matter of time.

This clearly shows that stock markets across the world are greatly vulnerable to the social media. The other fact than pains me more is that the bourses including India’s  are still not well equipped to tackle the threat that could arise any time from the misuse of social media.

Neither the concerned authorities are well aware about the potential threat that could appear on the block anytime from now nor the innocent investors who have started banking on the social networking sites to gain important information about the market.

However, global groupings of securities market regulators named IOSCO (International Organization of Securities Commissions) is well aware about the problem and quite determined to chalk out strategies in order to fight the menace as earliest as possible. From the Indian context, SEBI (Securities and Exchange Board of India) is also a part of IOSCO.

Though, the investors like me would have to wait for few more months as the issue would be taken up in the next gathering of the IOSCO members. The meeting would be held in Montreal in June later this year as per the Secretary General David J Wright who is present in India to attend a seminar organized by the Asia Pacific Region Committee of IOSCO.

Till the time, my advice to the fellow investors who like spend most of their time on social networking sites is to be bit restrained in acting upon anything and everything posted on these sites.

Ashish Pandey

I am a business and finance journalist who is currently employed at Financial Express and previously at Zee News. My areas of interest include business and foreign policy. You can reach me on Twitter at @ashuvirgo1984 or @eFundsPlus.

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  • bhush

    Social media is a double-sided sword, used for good it will serve good, used for the worse, and in order to harass people – it is bound to create panic.
    Investors besides making sure on how their stocks are doing, also need to make sure that they do not believe in hearsay across social media and collect requisite information before taking any action on their invested money.