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Twitter-based fund beats the market


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Twitter-based fund beats the market

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Source: This Is How a Twitter-Based Hedge Fund Beat the Stock Market - Business - The Atlantic Wire


Quoting 
You might think a 140 character tweet doesn't have much power, but, as one hedge fund proved, Twitter can help you win the stock market. "Derwent Capital, the hedge fund that is using Twitter sentiment to make its investments, beat the market--and other hedge funds--in its first full month of trading," All Twitter's Lauren Dugan reports. Using an algorithm based on the social media mood that day, the hedge fund predicted the market to make the right trades. Sounds unbelievable that something cluttered with mundane musings and media links could have anything smart to say about the market.

But it's working so far.

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@DerwentCapital is the name.

Twitter

https://www.hugedomains.com/domain_profile.cfm?d=derwentcapitalmarkets&e=com

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FYI - This algorithm is based on a paper released by Bolen et al (https://arxiv.org/PS_cache/arxiv/pdf/1010/1010.3003v1.pdf).

I'm actually performing research for my doctorate to extend / confirm the Bolen et al research as well as other research by Sprenger & Welpe found here -> Tweets and Trades: The Information Content of Stock Microblogs by Timm Sprenger, Isabell Welpe :: SSRN

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So if everyone stopped using twitter, the hedge fund would be lost for words (pun intended). There goes that strategy.lol

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taylor View Post
So if everyone stopped using twitter, the hedge fund would be lost for words (pun intended). There goes that strategy.lol

Yes...very true

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and we know full moon put people in expansive mood.

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So essentially, they're using market sentiment, with intermarket analysis, to make money. Also, they're making swing trades, no day trades.

I really don't think theres anything new about this..... Alot of poeple trade the market like this, they're just using twitter. Also, it would have been more impressive if they made day trades. Much harder, much more crowded.

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isn't there a flaw in an algorithm that follows crowd psychology?

If there is "force" in a twit or a million of them to make markets move, does this also assume that people who twit make a trade out of it? that would be a wrong assumption.

Also, twits get copied and retwitted as one's own with a slight change...this is one flaw that twitter has, the spam is out of control and it's not easily detectable. This could be picked up by an algo as a sentiment.

This is one complex Algo....all i know is this, simplicity still rules. The Ark was built by amateurs, the Titanic by professionals.

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mattz View Post
isn't there a flaw in an algorithm that follows crowd psychology?

If there is "force" in a twit or a million of them to make markets move, does this also assume that people who twit make a trade out of it? that would be a wrong assumption.

Also, twits get copied and retwitted as one's own with a slight change...this is one flaw that twitter has, the spam is out of control and it's not easily detectable. This could be picked up by an algo as a sentiment.

This is one complex Algo....all i know is this, simplicity still rules. The Ark was built by amateurs, the Titanic by professionals.

Is there a flaw in an algorithm that follows the crowds? Maybe...maybe not.

Is there a flaw in an algorithm that claims a success rate of 87.6% accuracy? Maybe...maybe not.

My understanding of the original Bollen et al research is that they take the 'mood' if the twitterverse today using only those tweets with 'mood words' (e.g., tweets including "I'm feeling", "I'm", "I don't", etc). That mood is then used to predict the movement of the Dow Jones Industrial Average for tomorrow and a position is taken to take advantage of that prediction (long, short, etc).

In the original paper that the fund is based on, there are a few different accuracy rates with the 87.6% rate being the one touted by many people and the lower rates being ignored. That's interesting to me...why only focus on the best rate? The actual prediction methods aren't fully disclosed in the paper so I'm leery of the accuracy rates since there doesn't appear to be any method to easily reproduce the research.

My research is focused on seeing what value is actually in a 'tweet' and whether 'tweets' actually provide an predictive capabilities. My research is closer to the Sprenger & Welpe research and previous research performed using Yahoo finance message boards to determine whether message volume has any correlation with stock volume (some research says yes, some says not).

Is using the wisdom of the 'crowd' a valid approach to investing/trading? I think that traders that follow a momentum trading approach would as yes....when a lot of volume moves into a stock and price begins to go up (or down), many traders jump on board to catch the momentum train (i.e., the crowd is jumping on board).

Does an investing/trading approach using twitter as a decision making tool make sense? Don't know....but I will tell you that studying this approach is a valid way to finish my dissertation.

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