Twitter becomes latest tool for hedge fund managers
The millions of tweets posted on Twitter are being analysed by hedge fund managers to predict share price patterns.
The program was originally designed by Johan Bollen, professor of informatics and computing at Indiana University.
It takes a random 10% of all Twitter feeds and uses two methods to collate the data. One compares positive with negative comments and the other uses a program designed by Google, the internet giant, to define six moods calm, alert, sure, vital, kind and happy.
In a study published last October, Bollen used the social networking site to predict the direction of the movement of the Dow Jones in New York with 87.6% accuracy.
Mr Bollen’s algorithms flag up key emotive words when they appear in a certain order.
He told the Sunday Times: "We recorded the sentiment of the online community, but we couldn't prove if it was correct. So we looked at the Dow Jones to see if there was a correlation. We believed that if the markets fell, then the mood of people on Twitter would fall.
"But we realised it was the other way round — that a drop in the mood or sentiment of the online community would precede a fall in the market.
"That was a eureka moment.
It meant we could predict the change in the market and that gives you a considerable edge."
WiseWindow, a data provider in California, boils down the online input of 100m social networking comments every month for its clients.
Video Interview with Paul Hawtin, Founder of Derwent Capital, "The Twitter Hedge Fund"
On July 1st 2011, London based Derwent Capital Markets launched the Derwent Absolute Return Fund which became known in the industry as the "Twitter Hedge Fund'. This highly anticipated hedge fund is Europe's first to utilize sentiment derived from real-time social media data analysis.
– How the Twitter hedge funds's signals are computed
– Operational set up and infrastructure of Derwent
– Trade generation
– The "Michael Jackson" Test: Is the Twitter hedge fund an automated black box?
– Risk Management
– Will large scale analysis of social media be part of quant trading and investing from now on?
– Who is invested in the Twitter hedge fund?
– Capacity, Target return
Derwent Capital Markets Ltd is a London based, family owned investment boutique, authorized and regulated by the UK Financial Services Authority.
Get the Paper on which the Fund is Based HERE
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