Influence of social networks on the clothing companies’ stock prices

Abstract

Modern social networks are becoming a significant factor in stock market pricing because the information they generate expands the aggregate news background that determines stock prices according to currently prevailing efficient market theory. The news generated in the electronic media affect all the spheres forming supply and demand not only for manufactured goods but also through them for the prices of their manufacturers’ stocks. Normally, the relationship between the production of goods and the share price of its manufacturer is traced through economic indicators of profit, size of dividends, etc. Social information does not have a direct economic content. However, according to efficient market theory this kind of information should influence the share price. The article proves the influence of a trendsetter photo wearing certain brand clothes on the stock quotes of the company that owns this brand. The event analysis method reveals a short-term increase in company's share market price after the publication of a trend-setting blogger photos on Instagram, especially when it comes to a luxury brand. At the same time, the trend-setter profession and gender do not affect the abnormal rate of stock return resulted from the publication of his photograph. It proves a relative isolation of the “trend setter” itself in comparison with the personal characteristics of a blogger and turns this title into a specific independent factor in stock pricing.