Back in October, I wrote a story about three professors who had argued that comments on Twitter can predict the stock market. Now, according to Bloomberg News, a hedge fund will do the same thing - with money, of course.
From Bloomberg (via, Abnormal Returns and The Big Picture): "The Derwent Absolute Return Fund Ltd., set to start trading in February with an initial 25 million pounds (US$39-million) under management, will follow posts on the social-networking website. A trading model will highlight when the number of times words on Twitter such as 'calm' rise above or below average."
According the professors who wrote the academic paper, a change in emotions expressed through online "tweets" tend to influence moves in the Dow Jones industrial average several days later. Indeed, they contend that these emotions can predict the Dow's moves with an accuracy level of 87.6 per cent.
Interestingly, these same academics are helping the new hedge fund. According to Bloomberg News, Derwent has brought on Xiao-Jun Zeng, a doctor of computer science at the University of Manchester and one of the authors of the Twitter paper, to help develop trading models.
David Berman