That could become a valuable tool for hedge funds and investment firms. High volatility often makes it easier for firms to trade stocks. Volatility predictions can also be factored into more comprehensive trading models and better predict whether a stock's price will rise or fall.

"As far back as six or seven days, people's perceptions of a brand matter," Nagle said. "The problem has been that public perception has always taken longer than a buy or sell sentiment to factor into share price."

Nagle's research also shows in certain concentrated industries sentiment about the overall industry may have more of an impact on share price than sentiment about the individual company. He offered the airline industry as an example, where a relatively small number of publicly-traded companies focus on providing one core service. An increases in tweets about air travel, for example, may predict forthcoming volatility for the volume of shares for companies within that industry.

Nagle cautioned that, at least for now, social media sentiment is probably not enough to make an educated buy or sell decision, but it can - and will - be a factor in trading models going forward.

"It's useful to know what the public is saying about a company to help make those decisions, and theoretically using that data to make those decisions could be possible in the future," he said. "But for now, if the only piece of information you're using to make buy and sell decisions is social media, I would be concerned."

Photo courtesy of ShutterStock.

Yahoo = 2.92
Microsoft = 1.21
Google = 1.02
Amazon = 2.27
eBay = 1.02

Falling price does not equal value. Three types of investor are holding Yahoo stock high for different reasons:

1. Arbitrageurs who believe that a deal will still be done, even if it is not Microsoft who does it. They may have a point. It is a gamble, but that is what these guys do. They probably figure some safety based on the fact that, if no deal is done, then:
2. Yahoo will outsource search to Google, giving a quick earnings “pop” at the expense (maybe) of long term competitive advantage. So traders can get out after the pop, leaving longer term investors hoping for:
3. Yahoo pulling out some serious magic. The one belief that may have some grounding in reality is that Yahoo has the best grasp, among the big guys, of how to monetize social media in a way that does not destroy social media for the users. Yahoo would be a great stock to own if they pulled that off. But that is pretty tough to pull off.