Stock investors may finally have the "crystal ball" they have always wanted — Twitter. Researchers from Indiana University-Bloomington examined nearly 10 million tweets over 10 months in 2008, looking for key words to indicate the public's mood, and found an astonishing 87 percent correlation between "calmness" on Twitter and the ups and downs of the Dow Jones Industrial Average two to six days later. Could Twitter be the key to making a fortune on stocks? (Watch a Bloomberg discussion about the connection)
Yes, betting on stocks is safer with Twitter to guide you: You can bet "hedge funds and banks are running to create algorithms that will mine Twitter data," say Parag and Ayesha Khanna at Big Think. The reason the stock market has always been such a minefield is that its moves are determined by the public's mood, and "emotions by nature are often irrational" and therefore hard to predict. But with Twitter acting as a "crystal ball," it's getting easier to decide when to buy and sell.
"Twitter — Crystal ball into the future?"
Sorry, Twitter has not taken the risk out of stocks: Twitter and other social media indeed offer an intriguing window into the minds of their users, say the editors of The Financial Express, but that doesn't mean you can use other people's tweets to "cheat the stock market." People have found links between "sentiments on Twitter" and the Super Bowl, the Mets' play-off win, and financial gains and losses in the month of January — and nobody really knows what it all means. So beware — you'll always be at the mercy of the "whims and vagaries of the market."
Tweets can provide a glimpse of the invisible hand that moves markets: There is only so much "the jabber on networks like Twitter and Facebook" can tell us, says Jared Keller at The Atlantic, but we still should be glad to have them around. "Investors' panic over a perceived crisis leading to an actual crash," but past researchers have been powerless to predict when they would happen. Twitter might just help people spot "the emotional and psychological forces that comprise human behavior and influence, however slightly, the invisible hands of markets."
"Predicting stock market changes using Twitter"
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