Fake news and the finance industry

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After the Facebook – Cambridge Analytica scandal, now it seems Twitter might come under fire. While the famous microblog hasn’t had any big privacy issues yet, “fake news” on the site has begun to affect investment sectors. An article published by The Telegraph revealed that thousands of robots running automated accounts have been spreading misinformation throughout the platform, manipulating stock markets.

The term “fake news” became popular during the 2016 US election campaign, but its root isn’t new – it has simply proliferated into new platforms as technology evolves and society becomes more and more connected.

So far, we’ve seen the influence of fake news as it alters the political scenario in several countries to the point of triggering new regulations. Last week, Malaysia approved a controversial new law to punish people who spread false information, the latest Asian country to act in the matter. Meanwhile, in Europe, the EU prepares severe measures against social media companies that don’t take full responsibility for its part in the propagation of fake news.

Still, the power of social media is only set to grow. As an example, more money will be spent on social networks than on TV advertisement in the next two years in the UK. But in the finance industry, fake news can alter markets in bad ways.

In a recent interview to the website TheStreet, Portfolio Manager Jim Cramer mentioned that opinions come out as facts, and often this is done intentionally as a way to manipulate the market and make a profit.“There is not sensitivity among the press or the Justice to the fact that this is a crime”, he says.

Cramer also points out that good professionals worry about their reputation and don’t spread fake news. If a credible source makes a mistake, it must apologise “and make this as big as the story” to protect and maintain their reputation. When in doubt, he says, it’s always useful to consider how much that person/organisation could make if a certain stock dropped a few points.

When rumours and fake news are spread by bots, however, it’s harder to identify the original source or intention. New regulations to monitor the use of robots are necessary, and whilst policymakers don’t come up with a permanent solution, investors are turning to technology to protect their businesses from, well, technology. It explains why the use of artificial intelligence in finance is increasing fast, and now companies look into using AI to change business models towards smarter trades.

The latest events regarding social media and user privacy have proven that fake news can influence the political landscape anywhere. As technology advances, it’s not surprising that it can have a strong effect on other areas too. Misleading information can be disastrous to the financial industry, damaging the confidence in the markets on which millions of people depend on for their investments.

In such a complex scenario, investors need independent and reliable sources of information. Identifying fake news is the first step. If a certain fact that has been overly mentioned on social media is partially or entirely false, a full digital analysis and ongoing monitoring can assist in strategic decision-making by looking retrospectively at peaks in the context of longer-term trends. Now more than ever, an ongoing digital due diligence is fundamental to shield healthy businesses from malicious fake news.

To find out how onefourzero can use data to generate digital diligence reports that help you analyse the market and its potential risks, click here or contact fleur@onefourzerogroup.com