Using Twitter to predict stock market
Business First by Gary Burns, Associate Editor
Date: Wednesday, September 28, 2011, 11:07am EDT - Last Modified: Wednesday, September 28, 2011, 12:32pm EDT
In analysis of Twitter chatter may have helped the London, England-based Derwent Capital Markets fund end its first month of trading in July with a return of 1.85 percent, which is good, considering that the Standard & Poor’s 500 financial index dropped 2.2 percent and the average hedge fund made just 0.76 percent over the same period.
That nugget of information was recently reported by the publication New Scientist, which took a look at what appears to be the growing use of social media to make stock market predictions.
New Scientist reported that Derwent’s used algorithms devised by Indiana University computer scientist Johan Bollen to track emotions tweeted on about 10 percent of the roughly 100 million daily tweets. The programs analyze the “mood of the crowd,” so to speak, and then use the result to predict market ups and downs.
New Scientist noted that an earlier study published by Bollen reported that his algorithms predicted the daily moves of the Dow Jones average closing price with 87.6 percent accuracy.
Derwent Capital is not alone in getting on board with social media market analysis. Bloomberg, the financial firm, has teamed with the Irvine, Calif., company WiseWindow to aggregate useful information from a variety of social media sources, including Facebook.
According to New Scientist, WiseWindow claims “a near direct correlation between social media conversations and stock price.” That is, the tone of the tweets may indicate which way the market will go. If true, tweet analysis will become big stuff, indeed.
On the other hand, some people claim to do well in the market by making their buy-sell decisions based on the results of throwing darts at a cork board.
It all beats the heck out of me. Meanwhile, the world of data analysis marches on.
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