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Twitter analysis boosts trading results

06 April 2011  |  11000 views  |  0 twitter logo

Twitter is being used by German economists for a Web site that predicts stock price trends, after an academic study found the micro-blogging site a prescient tool.

In a study, the Technical University of Munich economists analysed 250,000 Twitter messages written in a six-month period related to S&P 500 listed companies.

They found the sentiment of tweets to be associated with abnormal stock returns and message volume to predict next-day trading volume.

The analysis shows that if an investor had used Twitter sentiment to guide share purchases in the first half of 2010, they would have achieved an average rate of return of up to 15%.

Timm Sprenger, economist, TUM, says: "If a Twitter user often gives good stock recommendations, he will, as a rule, have more followers and will be 'retweeted' (ie quoted) more often by other users. Hereby, tweets with good recommendations are affirmed and receive greater weight in the overall analysis."

Sprenger has now set up a Web site to exploit the findings. Currently operating in Beta, TweetTrader.net acts as as a real-time iinformation aggregator for stock-related social media content.

London-based Derwent Capital Markets has already launched a £25 million hedge fund using Twitter to predict the market after separate research published in October found that analysing the content of daily Twitter feeds using two mood tracking tools enabled the team to predict with an 87.6% accuracy the daily ups and downs in the closing value of the Dow Jones Industrial Average.

You can see the beta TweetTrader site here.

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