For years, analysts have predicted that the real value of the social networking service doesn’t lie in serving advertising to users, but rather in serving up millions of points of real-time data to anyone who can wring useful intelligence out of it.
A new paper published by an Indiana University professor, combined with recent practices on Wall Street, suggest that Twitter may be a goldmine of valuable financial information.
Power to the people: A professor’s analysis of Tweets proved 87 per cent accurate in predicting stock prices
Data: Social services like Twitter may prove invaluable when it comes to real-time financial information
Johan Bollen, a professor of informatics at Indiana, co-authored a study that linked a computerized assessment of the ‘mood’ of millions of Twitter posts with stock market performance.
Mr Bollen’s analysis of Tweets was said to have an 87 per cent chance of successfully predicting stock prices within three or four days of online discussion of the company in question.
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One program assessed whether a tweet about a particular company was positive or negative, while the other tried to drill down further and categorize tweets through six modifiers: calm, alert, sure, vital, kind and happy.
Mood tracker: By analyzing what people post to Twitter, scientists hope to gauge the mood of masses
Mr Bollen told USA Today: ‘If you would have told anyone 10 years ago that this data would be available, they would have called it science-fiction.
‘We know that emotions play a significant role in markets’.
Mr Bollen added that the process of analyzing millions of tweets is akin to a ‘large-scale emotional thermometer for society as a whole’.
USA Today wrote: ‘This incoming psychological snapshot of the Twitterati, digerati and average Joe could prompt a computer program interpreting the data at a hedge fund to place a trade without human intervention in an attempt to profit from the information’.
In fact, some financial companies are already incorporating analysis of Twitter and other social media into their decision-making strategies.
Data wizard: Twitter CEO Evan Williams demonstrates his site in this file photo
One such company, London-based hedge fund Derwent Capital Markets, has announced plans to step up the process.
In March, a study by a Ph.D. student at Pace University showed a positive correlation between social-media ‘popularity’ of Starbucks, Coca-Cola and Nike and their stock prices.
On several levels, the news that stocks can be affected by Twitter shouldn’t be surprising to anyone.
If the ‘micro-blogging’ service could play a role in the toppling of regimes in the Middle East, it stands to reason that it could affect the trading price of IBM or Bank of America.
The news may help further democratize information, and thereby the economy, and it is probably only a hint of the vast amounts of valuable info that are likely to be harvested from social networks.
Price signals: A study at Pace University showed a positive correlation between social-media ‘popularity’ of Starbucks, Coca-Cola and Nike and their stock prices
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