How News May Affect Markets' Complex Structure: The Case of Cambridge Analytica
Antonio Peruzzi1, Fabiana Zollo1,2,3, Walter Quattrociocchi1,3
1The Department of Environmental Sciences, Informatics and Statistics (DAIS), Ca' Foscari University of Venice, Venezia 30123, Italy.
Entropy (Basel, Switzerland)
|December 3, 2020
Summary
The Cambridge Analytica scandal increased stock market fragility. Financial assets became more correlated and interconnected, raising systemic risk and impacting investment portfolio safety.
Area of Science:
- * Financial Markets Analysis
- * Behavioral Finance
- * Data Science Applications
Background:
- * The Cambridge Analytica scandal involving Facebook data raised user concerns about manipulation.
- * This event caused significant shockwaves, impacting Facebook's stock price and the broader market.
- * Understanding the market's reaction to data privacy breaches is crucial for financial stability.
Purpose of the Study:
- * To analyze the impact of the Cambridge Analytica data scandal on stock market dynamics.
- * To investigate the effects on Facebook's stock price and the NASDAQ-100 components.
- * To assess changes in market correlations and systemic risk post-scandal.
Main Methods:
- * Utilized 15-minute stock prices and returns for NASDAQ-100 components.
- * Analyzed data from periods before and after the Cambridge Analytica event.
- * Employed correlation analysis and Mutual Information to measure asset interconnectedness.
Main Results:
- * Observed a significant increase in correlations among NASDAQ-100 components after the scandal.
- * Found a notable rise in Mutual Information between assets, indicating greater interdependence.
- * Identified a 'master curve' relationship between correlation and Mutual Information, suggesting market fragility.
Conclusions:
- * The Cambridge Analytica event heightened systemic risk in the stock market.
- * Increased asset correlation and Mutual Information reduce the feasibility of safe investment portfolios.
- * The study highlights the market's vulnerability to data privacy and manipulation scandals.
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