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Twitter to be Used to Predict Stock Market

Twitter has been used to spot baby bumps and what people would do if they had super powers, but now it’s getting serious: a family-owned hedge fund will offer investors the chance to use Twitter to measure the mood of the stock market.

Bloomberg reports that Derwent Capital Markets will be trading with 25 million pounds based largely on how Twitter reacts to the financial climate. Their Twitter-vestment experiment will start in February.

The hedge fund will measure words such as “calm” to see whether their frequency rises or falls below average. According to Bloomberg, a paper published in October revealed that a change in emotions expressed online – through Twitter or other social networks – was often followed by a move in the stock market anywhere between two to six days later.

Derwent Capital Markets is partnering with the authors of this report to create an algorithm that uses their predictive Twitter measurements, as well as other, more tangible factors like the price of commodities and the Dow Jones Industrial Averages indexes.

It’s interesting to see the financial industry looking to Twitter for mood – as opposed to facts or news – to predict the stock market. The news industry, for instance, seems to be using Twitter to get at breaking news rather than people’s opinions. This stock market experiment really highlights the diverse insight that Twitter offers.

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