Research into Twitter‘s utility as a news feed for making stock market decisions has turned up something odd: Following Twitter is almost as good as taking dedicated analysts’ advice when it comes to earning profits.
The conclusion has spun out of research by doctoral student Timm Sprenger at the Technical University in Munich. Last year Sprenger used Twitter analysis to predict the outcome of the German federal elections, and achieved an accuracy within 2% of the actual number of votes each party received. This place Sprenger as close to the rresults as research organizations that conduct exit polls, speak to the public via surveys and do other sophisticated analysis that all costs many thousands of Euros. Next Sprenger extrapolated his analysis to the stock market news that’s found on Twitter, and analyzed over 250,000 tweets during a half-year period.
Sprenger’s analysis revealed a “striking co-ordination” between consensus opinions and news information disseminated over Twitter and conclusions and advice on stock prices made by professional analysts and institutions. In fact, by savvy use of Twitter-sourced company news and details of sales or purchases of stock by other investors, Sprenger calculated that during the six month period of his study an investor could have made a comfortable return of 15%. Not only is that remarkable, it’s a figure that easily beats interest gained from almost any bank over the same period, and which may have high-paid analysts scratching their heads over their own average return rate.
Sprenger also found that Twitter was acting as a kind of layered filter for stock news–and that more important news was more frequently re-tweeted. In fact it would appear Twitter’s userbase is acting as a potent crowdsourcing tool for stock–something Sprenger has now turned into a website dubbed TweetTrader, where users can access aggregated opinions on stock sourced in Twitter.
Twitter’s recent redesign to include an emphasis on “instant updates” from “industry experts” and its new cheap-price access to its firehose means that many people and companies may be tempted to tap Twitter as a valuable financial markets guide.
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