Researchers claim Tweets predict The Dow
October 23, 2010 8:05 AM Subscribe
posted by Mutant (19 comments total)
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Invented by Charles Dow
in 1896, The Dow Jones Average
) is perhaps the most widely known metric of equity market behaviour.
Calculated as a price weighted average
of thirty stocks
, The Dow is generally eschewed by professional investors who prefer the broader S&P 500
, a so-called market capitalisation weighted index
consisting of 500 stocks.
Regardless, proponents of the Dow claim its simplicity, long history and careful design as a reliable proxy of US economic activity as points in its favour. But can they now claim predicability as well
Bollen, Mao & Zeng from the School of Informatics and Computing, Indiana Unviersity-Bloomington, integrated OpinionFinder
(a tool that parses feeds and can identify positive vs negative moods), and a customised version of the Profile of Mood States
tests with what they described as "large scale Twitter Feeds" to identity a non casual relationship between Tweets and subsequent performance of the Dow Jones.
In fact their research
[ .pdf ] claims that they can predict the daily up or down state of the close with an accuracy of 87.6%.
How long until the Efficient Markets Hypothesis
asserts itself, and this opp (if it really
exists) is traded away? Or will it persist, much like the long studied Weekend Effect
or January Effect
Of course as far as calendar effects
go neither have the staying power of sell in May and go away, which has been documented in England since 1694.