Twitter Hits The Financial Markets
Guest post: Dee Mason
Twitter Hits The Financial Markets
Twitter has been used in all kinds of ways – and now it seems it’s the new best friend of hedge fund managers. The now ubiquitous social media and micro blogging service was launched in 2006 and no-one could have predicted the way it has taken hold. Since then, there have been hundreds of tools launched to make sense of the information coming from people’s tweets, from apps to manage tweeting to search engines designed specifically for social media updates. Perhaps it was only a matter of time till the stock markets got involved.
Investor Confidence
We already know that the way people feel and their level of confidence can have a huge impact on the markets. Some market events can cause confidence to drop, causing a momentary dip in prices or even a downward spiral. These include earnings announcements, revised estimates, company alerts about income projections, interest rate changes and more. But there’s big money to be made for investors who can predict market trends, betting for or against gains and losses. And it seems that Twitter just might be the tool to help them do that.
Twitter Mood Prediction Tool
In October 2010, two professors of computing and informatics at Indiana University, Johan Bollen and Huina Mao, said they though that Twitter would be a useful way of predicting the behavior of the Dow Jones. In a paper titled Twitter mood predicts the stock market; they suggested a link between the mood states elicited from Twitter feeds and the behavior of the Dow. They measured some 9 million tweets over a 10 month period to reach this conclusion. Separately, sociologists have worked on studies that show that Twitter knows what you’re feeling, and there are already tools out there that can gain the sentiment of your tweets, though usually as part of other applications.
Derwent Goes Live
This year a new hedge fund based in London, Derwent Capital Markets, has splashed out on the Twitter predictor tool used by the professors in order to start training based on the findings. Co-owner Paul Hawtin is convinced that this is a viable investment tool which will only get better as Twitter continues to grow. Scanning Twitter for keywords to see what the mood is and drive investment may seem like a harebrained idea to those on the outside, but in testing the algorithm had an 87.6% accuracy rate. The program can work out, after a random sweep of tweets, whether the prevailing mood is happy, kind, vital, sure, alert or calm. When the mood drops, so does the Dow, so in theory if you know the mood ahead of time, you can invest or disinvest accordingly.
So is this type of tool really useful? It must be, as it’s not the only one in town. These days business people at all levels are after real-time information, whether that’s about how they are feeling or what they are clicking on a particular web page. This enables a hitherto-unknown level of responsiveness to web customers.
WiseWindow – Another Option
Getting back to investments, another option is WiseWindow’s Mass Opinion Business Intelligence (MOBI) tool (not to be confused with the popular eBook format). This is a way of listening to what customers are saying and figuring out the overall sentiment. This tool measure sentiment on blogs, message boards, forums, Twitter and Facebook, so perhaps gives an even more comprehensive overview of sentiment. In a recent test, the software was used to make a correlation between consumer sentiment on car quality, reliability and problems and the prices of Ford and General Motors stock. The results of a six month period of testing found that there was a 30% improvement in annualized investment returns for some companies and for American Airlines, which was also included in the test, this improvement reached 65% on an annualized basis. Market fluctuations using this tool were also less volatile.
So, is this the wave of the future for investment? Perhaps one day all our social media updates will be used to make decisions not only on investments, but on launching new credit cards, naming new products and more. Until then, maybe it’s time to think about investing in Derwent.
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About Jye
Jye Smith is currently the Digital Strategist for Weber Shandwick Australia. Ranked in B&Ts 30 Under 30, he's a regular keynote speaker and workshop facilitator who specialises in digital strategy, social media marketing, and change management.
