The Social Influence

We are living in the golden age of social media. Social media introduces us wide networks between different people, businesses and even products. These networks are shaping our society and questioning the regular business models: For example, social media influencers on YouTube have managed to revolutionize the whole retail industry with cosmetics. An article from Financial Times show that a single YouTube-video has a power to generate quick revenues for different companies.


Social media influences businesses, so why not investing? Does social media affect the average investor behavior?


It sure does.


What you say public in social media has to affect the stock markets in some way. I think it isn't even necessary to mention Donald Trump and the power of his Twitter to the stock markets. Also, the things individual people say in their blogs or Facebook-statuses, must effect on behavior of some (but not all) investors. Of course this depends on the amount of influence that the person has and the amount of the audience following the influencer.


If I would say that Metsä Board and Nokia are the best stocks currently to buy in the Nasdaq Helsinki Stock Exchange, maybe some of you would just follow and buy some of these stocks. So few of you would buy these stocks that it would hardly change the quote of these stocks. But if it's an analyst or an other expert seen as reliable who would say this, these stocks will start to go up since more people are buying them and more capital is flowing into these securities.


For example socialite Kylie Jenner posted in her twitter that she (from all the people) doesn't believe that Snapchat is any good at the moment. This tweet sent Snap Inc. on the way to lose 1,3 bn USD from its market value at the time.

This is nothing new. Only thing that is the new is the variety of opinions and the amount of information available for the average investor is much more than it was 15 years ago. Back then you could only get this information if you could afford the monthly subscription of Bloomberg or Financial Times. Now you can get it from Google or from Facebook for free by just asking from a community of thousands of people.


For example a Finnish Facebook-group Sijoituskerho (The Investment Club) has over 30 000 members making hundreds of daily posts with statements and questions about different stocks, commodities and businesses. And the best thing is that you can join this group for free and get different opinions from real investors for your investing decisions. You don't have to buy Bloomberg.


The Facebook-group isn't official investment advisory, but if you get 100 "buy" recommendations from other investors, you would probably take that as a suggestion to buy the stock, am I right?


Now when we are presumably living in the boom-phase of the stock-market, it is expected that the volatility will increase. But how about now when we have the social media, its influencers and its incredibly good capabilities to distribute information to millions of investors worldwide? Could that increase the volatility even more in this phase? I would say yes. Could social media be also one reason to the unexplainable market reactions during announcements of quarterly results? That I don't know but would like to.

The availability of all kind of information isn't only exploited by investors, but also investment funds with their AI's searching for key-words or themes from blogs and forums all over the internet to interpret the investor attitudes and to predict stock-market activity. With capital sizes of that big that really could turn the tides of the stock-market on a daily basis.


The power of the communities is real everywhere, in investing it isn't any different. Also this introduces all kinds of ways to misuse. A while back Swedish amateur bloggers were sued for market manipulation. In their popular blog they gave recommendations to the stocks that they owned to inflate the prices of their stocks. Social media platforms like Twitter and Facebook were also used to accelerate the distribution of this kind of behavior.


We live in the 21st Century where we have more information in our hands than ever and we are integrated to interact with each other more than before. Due to the increased availability of transparent information the investor behavior and the stock-market are effected in some way. It is in the hands of the investors to process this information to make their best investment decisions and judgements on what to do with their wealth.


Text: SW

Everybody's Green

Before the liberalization of electricity markets, the consumers of electricity were served by monopoly utility. When the energy markets opened for competition, consumers were allowed to choose their preferred electricity provider from various providers. Also different sources of energy, like the green power options were introduced. This raises the importance to understand customer preferences when it comes to energy production and competition in the energy markets.

Currently sustainability and renewable energy sources are hot topics. Many countries in Europe make huge investments into green energy production to cut down carbon emissions and the European Union has promoted the use of renewable energy sources with several directives. This gives raise to even more sources of energies the consumers to choose from. Many studies show that consumers have mostly positive attitudes towards renewable energy sources and are willing to pay a premium for green energy consumption.


The key element of measuring consumer willingness to pay comes from the consumers’ preferences, which can be illustrated with a simple indifference curve. In the following graph, we can see the trade-off between the consumption of green electricity and the expenditure on electricity which is not produced by renewable energy.

The graph shows two indifference curves u0 and u1. Initially, the income used to expenditure on non-green electricity is in Y0 and the quantity of green electricity enjoyed is in the level of Q0. Now let us suppose that the quantity of green electricity enjoyed increases from Q0 to Q1 and we move from the initial point A to point C in the indifference curve u0.

At point C the consumer’s income has decreased by the amount BC to reach the point C in the indifference curve. This decrease in income gives the consumer willingness to pay (WTP) for the increase in the green electricity consumption.

Studies show that the WTP is positive for green energy in the most cases. This might be due to the fact of increased environmental awareness and more positive preference and opinions towards sustainable energy.

However, studies show that even though generic green energy has a positive WTP, there exists differences between different energy sources. Different energy sources are not perceived as equally preferred by the consumers. A study conducted in the United States showed that consumers gain more utility from solar energy than from alternative green energy sources. Similarly, In Finland wind energy was perceived as the most preferred source of electricity production.

Geographical differences have an impact on the consumers’ willingness to pay for a certain source of green energy. If the consumers have formed their personal opinion or attitudes towards different energy sources or have had past experiences of them, this has an effect on the willingness to pay for these energy sources. A study conducted in Germany, for instance, implied that the consumers prefer domestically produced energy to foreign energy. In the rural areas of Eastern Finland biomass on the other hand is preferred to other energy sources. This can be explained by the fact that in the Eastern part of Finland the potential supply of biomass energy production is considerable high, which might affect the consumers to prefer energy that is familiar to them and produced near of their habitat.

Also personal perceptions of energy sources affect the consumer choice. If for example in the case of biomass in Eastern Finland the local energy production creates more employment and income in the area, the people of the area might have more positive attitudes towards that source of energy. Perceptions work on the other way as well. After the Great East Japan Earthquake of March 2011 and the Fukushima nuclear plant accident, attitudes towards nuclear power changed radically. After the accident, it was shown that even though the WTP for green energy sources and emission reduction were positive, the WTP for increasing nuclear power in the electricity production become negative. Consumers were not willing to pay for a source of energy from which they had bad personal experiences.

WTP is generally positive for green energy sources but is it overestimated? It is suggested that limited participation to choose the green energy sources may have caused an overestimation of the WTP. Consumers may have evaluated different energy sources according to their preferences, but are not choosing to consume them because of several reasons.

Studies show that despite the positive WTP, there exists limited participation to green electricity. If changing from the default option requires physical effort and expenditures, consumers are less willing to switch their energy source even though they would value green energy mix more than their default one.

We can conclude that there exist several interesting attributes, which affect the consumers’ willingness to pay for green electricity. In general, it is shown that consumers indeed are willing to pay a premium for green electricity mix. This can be a causation for more awareness and positive attitude towards environment and sustainability.

One solution to increase WTP and increase participation would be to make green electricity even more available than today. If the process of switching to more green electricity would become easier, more transparent and less costly, we could see increases in the participation rates and increase the consumption of green electricity.

One way of achieving this could a government-backed program to impose green electricity to consumers without consumers themselves having to put an effort to the process of switching from the default. Several choice experiments state that the consumers are willing to pay for green electricity but the problem is how to choose and order it.