Can Twitter trends help you beat the stock market?

 

From New Scientist via Ralph-Christian Ohr:

THE trend is your friend, as they say on Wall Street. But when it comes to financial decisions, can you trust a Twitter trend? Possibly: an analysis of sentiments expressed on Twitter appears to have given the small London-based firm Derwent Capital Markets an edge.

Derwent’s 25 million fund finished its first month of trading in July with a return of 1.85 per cent. By contrast, the Standard & Poor’s 500 financial index fell 2.2 per cent and the average hedge fund made only 0.76 per cent.

Beginner’s luck? Perhaps. Or maybe the tweets are helping. Derwent’s system tracks emotions expressed across 10 per cent of the roughly 100 million daily tweets using algorithms devised by Johan Bollen, a computer scientist at Indiana University Bloomington. It then uses this information to predict changes in the stock market.

In a study published last year, Bollen’s algorithms predicted the direction of the daily swing of the Dow Jones closing price with 87.6 per cent accuracy. The index consistently rose a few days after a period of “calm” tweets and dipped a few days after a period of “anxious” tweets (arxiv.org/abs/1010.3003).

Speaking of which, you should follow me on Twitter here. You can also get updates via Facebook or RSS

Digests of posts:

Things you didn’t know about sex

How to quickly and easily improve your life

Things you didn’t know about sports

Things you didn’t know about happiness

Things you didn’t know about lies, liars and detecting lies

Things you didn’t know about negotiation, persuasion and influence

Things you didn’t know about marriage and relationships

Permalink [Leave a comment  »


Read more posts on Barking Up The Wrong Tree »

NOW WATCH: Ideas videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.