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How News May Affect Markets’ Complex Structure: The Case of Cambridge Analytica

1
The Department of Environmental Sciences, Informatics and Statistics (DAIS), Ca’ Foscari University of Venice, Venezia 30123, Italy
2
Center for the Humanities and Social Change, Venezia 30123, Italy
3
Istituto dei Sistemi Complessi (ISC)-CNR, UOS Sapienza, Roma 00185, Italy
4
LIMS London Institute of Mathematical Sciences, London W1K 2XF, UK
*
Author to whom correspondence should be addressed.
Entropy 2018, 20(10), 765; https://doi.org/10.3390/e20100765
Received: 31 July 2018 / Revised: 2 October 2018 / Accepted: 3 October 2018 / Published: 6 October 2018
(This article belongs to the Special Issue Economic Fitness and Complexity)
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Abstract

The claim of Cambridge Analytica, a political consulting firm, that it was possible to influence voting behavior by using data mined from the social platform Facebook created a sudden fear in its users of being manipulated; consequently, even the market price of the social platform was shocked.We propose a case study analyzing the effect of this data scandal not only on Facebook stock price, but also on the whole stock market. To such a scope, we consider 15-minutes prices and returns of the set of the NASDAQ-100 components before and after the Cambridge Analytica case. We analyze correlations and Mutual Information among components finding that assets become more correlated and their Mutual Information grows higher. We also observe that correlation and Mutual Information are mutually increasing and seem to follow a master curve. Hence, the market appears more fragile after the Cambridge Analytica event. In fact, as it is well-known in finance, an increase in the average value of correlations augments the systemic risk (i.e., all the market can collapse as a whole) and decreases the possibility of allocating a safe investment portfolio. View Full-Text
Keywords: social media; complex networks; financial series social media; complex networks; financial series
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Peruzzi, A.; Zollo, F.; Quattrociocchi, W.; Scala, A. How News May Affect Markets’ Complex Structure: The Case of Cambridge Analytica. Entropy 2018, 20, 765.

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