Blogs hit share prices - who can save us?

Whilst gossip, rumour and speculation are constantly features of markets, each with the ability to directly move share prices, this week was possibly the first significant share price move attributed to a blog post. The stock in question was Apple Inc and it was temporarily hit by a report from Endgaget that the iPhone would ship late. This report was based on an email that originated from Apple's servers, but whose contents were subsequently shown to be false.

$4bn was wiped from Apple's market value and 60% of a normal day's trading volume in the stock was done in 30 minutes.

Much of the volume would have been a reaction to the share price slide and the volume going through i.e. copycat behaviour and not a result of the entire market seeing the post. However, it does raise three interesting points for me:

Blogs are now a source of breaking news. Some companies are making use of them to issue news and indeed the CEO of Sun recently proposed to the SEC that his blog should count as an official companies announcement source. In other cases, journalists and informed company observers are using blogs as their reporting media. Of course, some blogs are just trash! But it does mean that for investors, there is yet another source to monitor, but one that presents an immense challenge - unlike traditional media sources which were relatively few in number and hence easy to locate and monitor, blogs can spring up in minutes and without much fanfare. So this will play on an investor's fear that they may be missing out on relevant information which is in the public domain (as distinct from popular sources of information).

The second issue is the speed of the dissemination of such information. RSS offers the most efficient means of identifying, retrieving and collating new posts when they become available. However, RSS processing generally works on periodic background scans of nominated sources i.e. batch process, with the consequence that latency exists between publication and its discovery. In some cases, sources can "ping" to announce new information is available, reducing this latency. Yet as the Apple case shows, 30 minutes makes a considerable difference.

This presents a considerable challenge - we are now looking for technologies that can discover new sources (high performance google alerts) and instantly identify new posts. This means operates at speeds not traditionally associated with traditional RSS reader services. Firms like Alacra and Monitor 110 are making a stab at this space, are playing to the fear factors I've referred to above. Personally I feel each has some notable gaps in their offering.

This is going to be another arms race, not dissimilar to firms seeking to employ the fastest connectivity solutions to interact with execution venues i.e. the market. Yet the last factor is one of relevance and quality of content. It's fine to find the information fastest, but you still have to assess what it means, not to mention form a view as to whether it is reliable.

The Apple story will have awakened many eyes to this new frontier, most of whom will have no clue of what they are facing, let alone have any idea on how to attempt to solve it. They will all appreciate it is a money making opportunity!

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posted by John Wilson @ 2:01 PM Permanent Link newsvine reddit


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