Does social media X influence the stock market?

Purpose The primary purpose of this study is to understand how social media affects the stock market through the Market Uncertainty Unit on X (formerly known as Twitter) in both the short and long run. Design/methodology/approach We use an autoregressive distribution lag (ARDL) model. This method is common in financial research and is particularly useful for analyzing how quickly the market reacts to changes in the economy or investor sentiment. By analyzing monthly dataset since 2011, we study the impact of social media sentiment on five major US stock indices, such as the S&P 500, NASDAQ, USA, NYSE and Dow Jones Industrial Average (DJI). The explanatory variables include the Social Media Uncertainty Index (SMX), real effective exchange rate (REX), consumer price index (CPI), interest rate (IR), industrial production index (INPT) and a linear deterministic TREND variable. Findings We find that whenever SMX rises, stock market volatility is also amplified, especially in the short run. Fluctuations in social media sentiment are often a strong signal of short-term stock price changes, especially when discussing economic policy or corporate earnings. Originality/value The fact that a few emotional or controversial tweets from executives can directly pull stock prices up and down further illustrates the importance of digital communication in investment decisions. Investors and financial analysts can use social media sentiment as an aid tool to help them more accurately predict market movements and reduce investment risk.