NEW YORK – Never in the history of written communication could 140 characters have the impact that they can have now. Two weeks ago, after gaining access to the Associated Press’s main Twitter account (@AP), the Syrian Electronic Army (SEA) posted a fake tweet reporting two explosions in the White House and the injury of President Barack Obama. Within seconds, US financial markets dropped by about 1%.
Minutes later, Twitter was abuzz with refutations. Reporters at the White House tweeted that they felt no explosion, and AP reporters and the AP Politics Twitter account announced that @AP had been hacked. At his afternoon briefing, White House press secretary Jay Carney confirmed that Obama was indeed unharmed. Financial markets returned to their pre-hoax level.
The @AP Twitter hoax represents systemic risk that cannot be eliminated, for it arises from the interaction of highly integrated financial markets and increasingly democratized news delivery. Given strong incentives for malicious parties to perpetrate such hoaxes, we should expect to see an increase in incidents.
Financial markets are vulnerable to manipulation, because they are not in the business of evaluating the truth. Trading often favors first movers, so being fast but wrong can still be profitable.