By Ansh Agal (June 29, 2021)
Edited by: Mansumyer Singh, Principal Associate
“Facts only account for 10% of the reactions on the stock market; everything else is psychology”1 – there cannot be a better line to describe how the stock market or any financial market for that matter, reacts. This aptly describes the rise and fall in the securities market when suddenly, a situation is reversed (of a particular company), and overnight, people might find themselves richer whereas some might may become bankrupt.
Media, rather – social media plays a very important but somewhat unwanted role in the ups and downs of a financial market. The most recent and popular instance of this can be the fluctuations in the cryptocurrency market – especially in the Dogecoin and Bitcoin markets. Dogecoin and its prices were heavily affected by the tweets made by Tesla and SpaceX CEO Elon Musk2.
“The price of dogecoin spiked on Thursday after Tesla CEO Elon Musk mentioned the coin on Twitter, adding another chapter to the volatile history of a cryptocurrency that started as a joke. The price of the digital coin was up more than 11% to about 40 cents in midday trading, hours after the first Musk tweet. “How much is that Doge in the window?” Musk tweeted on Thursday morning.”3 – his news article was featured on the CNBC network on May 21, 2021. This instance is the epitome of how the crypto market is getting affected by a simple and in fact funny tweet by Elon Musk. Just one “influencer” tweeting something humours about a cryptocurrency, can cause its global prices to fluctuate on a scale that has made people millionaires or broke4. Coming to the securities market and how it is affected by media, the most famous historical example is the Harshad Mehta Case5. This is a classic case of how the stock market reacted to the nuances of the media and its outreach. In modern times, old school media has taken a backseat and social media is driving the trends. Nowadays, WhatsApp and Facebook chat groups have pretty much replaced the role which newspapers used to play. One WhatsApp forward regarding the acquisition or launch of a new product can make the share price of that company skyrocket.
Similarly, the same platform has been seen to cause a share price collapse by almost 70% and to add to the woes of the company, the message was allegedly fake, with the official clarification of the company to the stock exchanges stating that no news can affect their share prices either positively or negatively in future6.
The question we all have to ask ourselves is – What exactly can be done? Should we even consider amending the laws in a way that protects markets from being impacted by fake news. Or the social media’s roots run so deep that no law can affect it. The unfortunate answer to this question is that social media is so open and so pervasive in our lives that restricting it may lead to curb in our personal freedom.
If we consider the situations where social media news and snippets have affected the stock prices, or have affected any sort of financial market, we can see that the factor of investors’ sentiments are heavily governed by such platforms. One wrong message, even a joke or fake news can practically demolish the standing of that company. An example of the effects of media can be seen in the following case – The New York Times dedicated a large space on its Sunday edition to a specific biotech company and its scientific progress about cancer treatment. None of the information reported was new and this progress had already been known for at least five months. Nonetheless, following the New York Times article, that company’s share price increased from $12 to $85 the day after the article to then settle at $52 immediately after. This also shows that the financial market (sometimes) reacts to stale news, as an effect of media coverage. It is therefore evident that the media can influence the dynamics of investment patterns by catalysing public attention7.
From the perspective of strategic financial communication, one might argue that it is too limited to only consider the media’s influence when trying to explain the stock market’s reactions. Not only market sentiment, but also the sentiments and recommendations of analysts for certain stocks/ industries/ sectors have been the cause of the rise and fall of certain companies’ stocks. It may so happen that using the media, the Public Relations (PR) team of a company can also affect their stock prices or of their competitors. Such things although have been regulated to a substantive extent, people still find back doors and loopholes to engage in such activities8.
We look at some legal provisions which the government has put in place to counter this, and observe whether they are effective or not. A SEBI official document on the share market says that – “Market rumours can do considerable damage to the normal functioning and behaviour of the securities market. It is therefore essential to have quick verification of such rumours from the corporates as well as from other entities whenever necessary. On being asked by the SEBI, companies have designated compliance officers who would be contacted by the stock exchanges whenever such verification is needed. Exchanges have been asked to take up quick verification of rumours and proper dissemination of the same. Exchanges have started verifying rumours and since October ’99 the same are getting reported to SEBI also.”9
This, in principle, is a good initiative. But what it lacks is awareness for the general public. The average Indian public is not yet aware of such clarifications being released by SEBI after receiving any such rumours on any such companies. Even then, the people might find it hard to believe a SEBI statement, when there has already been a “media trial” of that company. In January 2003, SEBI launched a nation-wide Securities Market Awareness Campaign that aims at educating investors about the risks associated with the market as well as the rights and obligations of investors10. This tool is the most effective way of countering the above-mentioned problem, but it presents a different problem of its own – outreach.
Another important aspect of the law is the Securities and Exchange Board of India Act, 1992 (SEBI Act) and specifically the insider trading provisions of the SEBI Act. Section 15(G) of the Act states that – If any person, communicates any unpublished price-sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or counsels, or procures for any other person to deal in any securities of anybody corporate based on unpublished price-sensitive information, shall be penalised. Since social media and other forms of media can affect the market in two ways – rumours and actual UPSI (Unpublished Price Sensitive Information), which can heavily affect the company’s stocks, the UPSI factor of the information is taken care of by this provision. SEBI also has a whole Insider Trading Rules for such actions. But the conclusion which can be drawn from this is that the Government and the Regulatory Authorities can only do so much to make the investors aware about the real and correct information and situations. It is up to the self-regulation of the general public to not misuse social media platforms to further their malicious agenda by spreading false information about a company to cause favourable movement in its stock price. It may be virtually impossible to have a law to govern what messages can be sent between two people, as this will infringe their right to privacy and freedom of speech and expression. The Intermediary Guidelines, which propose to find the originator of a particular message are also indicative of the government trying to regulate what people can or cannot say. So, the people should be aware of such situations in which false information can be spread, be aware of all the official clarifications regarding a particular situation in a company, and then react sensibly and with the right information at hand. This practice can go a long way in controlling the effect of social media and other media platforms on the stock market. The idea is to use Social Media to Regulate Social Media!
2 CNBC, Dogecoin jumps after series of Elon Musk tweets fans wilder cryptocurrency trading:
4 Business Standard, Dogecoin surges on Elon Musk tweet as crypto rollercoaster continues:
5 (Step 4) Big Bull Harshad Mehta’s clever strategy in ramping shares, India Today, Available at:
6 Business Standard, How a WhatsApp message destroyed Infibeam Avenues’s market value by 71%:
7 Bologna Business School, The Impact of the Media on Financial Markets, Available at: https://www.bbs.unibo.eu/the-impact-of-the-media-on-financial-markets/
8 Tylor and Francis, The Role of Media Coverage in Explaining Stock Market Fluctuations: Insights for Strategic Financial Communication, Available at:
9 SEBI, INVESTIGATION, ENFORCEMENT AND SURVEILLANCE, Available at:
10 ICSI, CAPITAL MARKETS AND SECURITIES LAWS, Module II Paper 6, Available at: